January 14, 2010

Carbon on Company Balance Sheets?

Despite the fizzle after the great fanfare of the Copenhagen Summit, many companies remain intensely focused on the strategic implications of climate change. Some believe that a requirement to monitor, report and reduce their carbon emissions is coming and is just a question of time. Indeed, some observers believe that carbon accounting is destined to be embedded in the core of enterprise systems, with carbon emissions tracked continuously and treated like any other balance-sheet item.

I recently had the opportunity to speak with David Abood, Managing Director, Sustainability Services North America and Climate Change Solutions Global Lead at Accenture, the consulting and strategy firm. In his experience, the attention companies are putting on carbon accounting, tracking and reporting varies according to the risk and opportunity they attach to it. Companies that see themselves “in the cross hairs” of future cap and trade programs are, as you might expect, paying close attention. For instance, Accenture is being asked right now by major companies that would be “capped entities” (bound, under proposed cap-and-trade legislation, to limit carbon emissions) to do company-wide system implementations to handle the requirement of detailed tracking of carbon emissions, or to do carbon analytics as a managed service.

But even companies that are not destined to become capped entities are getting increasingly engaged, he says, whether due to pressure from their customers or from organizations like the Carbon Disclosure Project. He expects the CDP to push for increasingly granular emissions tracking over time. This will inevitably drive more detailed reporting by the growing number of reporting companies and eventually their supply chain partners too (as I’ve noted here).

Accenture has made a substantial investment in building a capability to help clients cope with climate change. The firm has some 200-300 people in its Sustainability Services practice and around 2000 people company-wide with a focus in this area alongside their principle functional or industry expertise. The company has done an analysis of the “whole software market” around carbon accounting, Abood says, and are working with SAP, Carbon Networks and IHS, among other potential partners.

So, is the day at hand when most companies will track carbon emissions continously, and integrate emissions reporting into core financial and operational reporting? Not quite. Abood says that vision is “in everyone’s sights” but ackowledges that no one has yet “cracked the code.”

If you have a point of view on where carbon accounting is headed, please consider leaving a comment.

January 9, 2010

Energy = Strategy at Google

Google’s application with the Federal Energy Regulatory Commission to become an electricity marketer, reported in today’s Wall Street Journal, has some interesting parallels and carries important lessons about corporate strategy.

The company said its motive is to better manage energy supplies for its own operations, which some estimates suggest could require over a gigawatt of capacity today, and to gain greater access to renewable energy supplies, which would further its efforts to become carbon neutral.

Google’s focus on energy is strategic. And it suggests parallels with other corporate strategic moves that ran counter to conventional wisdom but ended up proving very shrewd. I have two examples. Perhaps you have others.

Example number one is Amazon.com. At the dawn of the e-commerce era, it was widely believed that the Internet was rendering bricks and mortar irrelevant to retail success. The Web browser was the competitive battle ground. Whoever could provide the best online experience would win the customer.

Amazon, meanwhile, plowed hundreds of millions of dollars into the development of sophisticated distribution centers to ensure it could provide a high-quality nationwide order fulfillment and delivery experience as well. Logistics and distribution, which had been a bit of a backwater industry and an afterthought for most online retailers, emerged as a competitive differentiator for Amazon. (As it is for Walmart off line). And having made such a substantial investment, Amazon created a major barrier to competition, one that was especially difficult to overcome when the capital markets turned against Internet ventures after 2000.

Example number two is Google itself. Among IT industry veterans it had been long accepted that with hardware costs on a perpetual downward trend, hardware was fundamentally a commodity; competitive advantage for vendors of end-user applications and tools lay in differentiated software.

Google showed the world that this was an oversimplification. Fueled by venture capital investments followed by a very rich initial public offering, Google has made staggering investments in its physical computing infrastructure (along with sophisticated competencies for managing that infrastructure). This allowed the company to set a new standard for search performance (and later the performance of a wide range of online tools) that would be impossible for all but the very richest competitors to match.

There is a parallel between Google’s focus on energy and these two stories. In all three cases, a resource believed to be a commodity emerged as a strategic weapon in the right hands. Many companies still give little more thought to their energy usage than they do to their water bill. But smart companies, especially those in energy-intensive businesses, recognize that energy is a strategic resource, not a commodity. And at companies of all types, even less energy-intensive ones, strategists would do well to revisit their assumptions about the sources of competitive advantage.

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January 5, 2010

Where is Clean Tech Heading in 2010?

Sorry, I can’t say I know yet where clean tech is heading in 2010. I’m still getting reoriented after the holiday. But early signs are that, as usual, both the hype and the backlash against the hype, are a bit overblown.

The Economist had a nice assessment of the post-Copenhagen landscape: mixed, essentially.

On the downside, the article said, a lack of firm mandate to cut emissions should have a chilling effect (pun accidental) on investment in clean tech. The article quoted VC Vinod Khosla as saying, “Almost all areas of clean technology will get a little less investor interest because there is no mandate.” And it said that German power company E.ON would back away from plans to accelerate plans to cut its emissions, which it had announced when it expect a firmer result out of Copenhagen.

On the upside, India and China have made important commitments to improve energy efficiency and rich countries have promised billions in green-investment support to poor countries. The article also rightly points out that a lot of the clean tech action to date has been driven by national, regional and local mandates and regulations, not international deals, and those were unaffected (so far) by Copenhagen. Finally, it’s worth noting that climate change mitigation is not the only driver of clean tech. Efforts to develop alternative energy supplies that are more secure than fossil fuels are an important driver as well. The recent period of volatile oil prices and geostrategic natural gas games in Eastern Europe (despite burgeoning global gas reserves) is a persistant motivator of investment in some cleantech subsectors. Chris Nelder is worth a close read for his take on the impact of resource scarecity on investment trends. He foresees a bull market in renewable energy investments. See his take on energy-related investment themes for the next decade here and here.

Some observers have taken note of a slow-down in venture investment in clean tech. Greentech Media tallied 2009 clean tech venture investments at around $5 billion in 2009, down from $7.6 billion in 2008. But in the broader context of overall VC, that decline doesn’t look so bad. According to the National Venture Capital Association, U.S. total VC investments in the first three quarters of 2009 were $12.2 billion, down from $22.1 billion during the same period of 2008. That’s a sharper decline than clean tech alone experienced.

What are the key questions facing clean tech and energy in 2010? I’d love to hear your thoughts and take some suggestions of what to dig into next on this blog.

Happy New Year.

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Filed under emissions, natural gas, oil

Tags: Add new tag, Clean technology, Mitigation of global warming

December 9, 2009

Bloomberg Makes Green Investing Easier

Bloomberg LP, the financial information and news company, attained phenomenal success by becoming an indispensible tool for financial professionals such as traders, financial analysts and investment bankers. There are Bloomberg terminals on over 250,000 desktops worldwide. And these are not ordinary desks: the people who sit at them influence possibly trillions of dollars of financial transactions each year.

: Image via CrunchBase

Many financial professionals could not imagine doing their jobs without a Bloomberg terminal. (See this Fortune article for background on the company and an illustration of the passion its terminals inspire among users.) It’s fair to say, therefore, that the Bloomberg terminal has shaped how investment decisions are made around the world.

What does this have to do with things green?

Last week I had the opportunity to visit the sparking Bloomberg headquarters in midtown Manhattan and see a demonstration of the new environmental, social and governance (ESG) data and analytics that have been added to the Blooomberg product.

The company says it has researched 20,000 companies around the world and has compiled ESG data on all those companies that have publicly disclosed any: 3080 companies in 43 countries. The terminal now carries some 85 environmental variables, ranging from total company CO2 emissions (direct and indirect), to paper consumed and recycled to energy intensity per EBITDA. Including the social and governance data, there are 120 ESG variables in total. Here are some more (e-mail me if you want the full list):

Travel Emissions (Th Tonnes)

Nitrogen Oxide Emissions (Th Tonnes)

Sulphur Dioxide Emissions (Th Tonnes)

VOC Emissions (Th Tonnes)

Carbon Monoxide Emissions (Th Tonnes)

Methane Emissions (Th Tonnes)

ODS Emissions (Th Tonnes)

Particulate Emissions (Th Tonnes)

Total Energy Consumption (MWh)

Renewable Energy Use (MWh)

Water Consumption (Th Cubic Meters)

% Water Recycled

Discharges to Water (Th Cubic Meters)

Hazardous Waste (Th Tonnes)

Total Waste (Th Tonnes)

Waste Recycled (Th Tonnes)

Paper Consumption (Th Tonnes)

Paper Recycled (Th Tonnes)

Fuel Used (Th Litres)

Raw Materials Used (Th Tonnes)

The data is fully integrated into the Bloomberg terminal; users access and manipulate it the same way they use traditional financial metrics. It makes it easy for analysts to build models of company performance and value that include both financial and environmental factors.

Bloomberg has added these capabilities because it recognizes that investment decisions, even by mainstream investors, will increasingly consider environmental, social and governance variables alongside traditional financial measures.

: Image via Wikipedia

But I suspect this initiative is more than just a response to a vision of what the market needs. It is a subtle attempt to influence how trading and investment decisions are made. The company’s founder, Michael Bloomberg, and its current president, Dan Doctoroff, have both racked up impressive green credentials. Before becoming president of Bloomberg LP, Doctoroff worked for Mr. Bloomberg at City Hall and, among other accomplishments, oversaw the creation of PlaNYC, the city’s impressive long-term vision of sustainable development.

By putting this ESG data in the hands of financial professionals, Bloomberg has eliminated a barrier to incorporating environmental, social and governance factors in investment and trading decisions.

It’s a hopeful sign that finance, an engine of economic growth, will increasingly consider both kinds of green.

December 2, 2009

Marketing Home Energy Management Without Utilities

After completing a study of the home energy management market I spoke last week with a strategy guy at large consumer electronics manufacturer. The company is looking at the home energy management market and evaluating various product and market entry strategies.

Many of the vendors of in-home energy displays are focused on working with utilities. Utilities have the customer relationships. In many cases utilities now have money to spend on in-home displays (a million of them in the U.S. according to the recent federal Smart Grid awards). And many have powerful motives to promote the adoption of energy information displays, ranging from fostering energy conservation, greasing the wheels for demand response programs, and dressing up smart grid investments with something the rate payer can see and touch.

Is there a path to market that bypasses the utilities and speaks directly to consumers? This is one of the questions my new strategist friend is looking at. It’s an interesting one, and one that Google raised when it announced that, along with trying to sign up utilities to share customer consumption data through its PowerMeter application, it is partnering with device makers like Energy, Inc. to capture and report on home energy use without the involvement of the utilities at all.

Perhaps consumers don’t trust utilities to help them manager their energy consumption. It is noteworthy that, according to a Pike Research report earlier this year (subscription required), some 30% of U.S. consumers were uninterested in demand response programs because of the “‘big brother’ aspect” and another 12% “don’t trust the electric company.”

Still, I think utilities are the key to the development of the market for energy information displays over the next 3 to 5 years (even though longer term I believe a consumer market for the devices will develop). And I suspect, based on the data I have, that the segment of consumers that would be motivated by distrust of their utility to buy an energy information device to be relatively small.

According to the Pike study, for instance, of those interested in energy information displays, over 80 percent said they would consider using their electric utility as a provider of energy management services that included one. An IBM study last year of consumer attitudes about energy consumption suggested that nearly 70 percent of consumers would be interested in a “participatory network” in which they share responsibility for energy management with utilities.

Utilities have an opportunity and an imperative over the next few years. They must convey to their customers the benefits of getting more engaged in their own energy managaement. And they must develop a more dynamic relationship with their customers. But utilities have their work cut out for them. Both the IBM study and a Gartner study released over the summer suggested that utilities have room for improvement in how they market new energy programs such as those relating to energy efficiency or green power: awareness and uptake of existing programs remain low in many cases.

So my sense is that this consumer electronics company may well be able to out-market the utilities, but would have little success building a market based on of distrust of them. A promising path forward might include a co-marketing arrangement, which could give the utilities a needed boost in their communication skills.

What are your thoughts?

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Filed under efficiency, grid, in-home displays, smart meters

Tags: Energy, Google, IBM, PowerMeter, Smart grid

November 24, 2009

Solar Powered Cars?

I’ve been monkeying with energy statistics long enough to know that, as with any statistics, with enough ingenuity you can find some number somewhere to prove your point. My goal on this blog has not been to prove points but rather to learn and maybe to teach. Today I set out to learn a little about the future of electric vehicles.

It seems likely that a material portion of the automotive fleet in the U.S. will consist of electric vehicles in the next 20 to 30 years. I haven’t done a forecast of the electric vehicle market, but many others have (for example here and here).

Others have also shown that electric vehicles can be less polluting than internal combustion engine vehicles–even if the electricity is produced by burning fossil fuels–because electric motors are more efficient than gasoline engine in converting stored energy to motion.

So I was wondering whether renewable energy sources like solar and wind might ever power a significant amount of our driving. My highly superficial analysis suggests that’s plausible but far in the future.

Consider this: it is estimated that today’s electric vehicles will travel a mile on between .2 and .4 kilowatt hours of electricity.

Last year, according to the Federal Highway Administration, U.S. residential vehicles travelled some 2,922 billion miles. According to the Energy Information Administration (EIA), some 843 MW hours of solar energy and some 52,000 MW hours of wind energy were generated in the U.S. last year. Together that’s enough to power about 176 billion miles of driving, or just about six percent of the total. Little to none of that electricity was actually used to power electric vehicles, though. The EIA says that in 2007, the most recent year for which I could find figures, all electric vehicles consumed just 168 MW hours of electricity.

Today, wind and solar account for a relatively small share of the country’s supply of renewable energy; hydropower is the largest source, and there will be very little hydropower capacity added in coming years. The EIA expects that our supply of renewable energy will nearly double by 2030 compared to 2007 levels, with growth led by solar and biomass. If half of that increase is used to power electric vehicles, assuming their efficiency doesn’t improve (a conservative assumption), that will be enough to power them for nearly 500 billion miles, a substantial share of the total.

It seems plausible, therefore, that renewably generated electricity could power a significant portion of the country’s driving needs over the next decades. Whether strong demand for plug-in electric vehicles will develop remains uncertain, of course. And like any analysis of the country’s energy needs, this one suggests that energy will continue to come from a broad mix of sources for the foreseeable future.

I welcome your perspective on the electric vehicle future and the role of renewables in it.

November 18, 2009

Onshoring and Offshoring Photovoltaic Manufacturing

The New York Times reported today that Suntech Power, China’s largest solar panel manufacturer, will open its first American plant in the U.S., nearl Phoenix.

It’s a good thing that some of the economic action around cleantech manufacturing is happening in this country. I recently came across this graphic showing the large disparity between Chinese and U.S. silicon manufacturing capacity.

Sourcce: Sun & Wind Energy 9/2009

Mind you, silicon is a raw material while the panels that Suntech plans to manufacturer in the U.S. are closer to the finished product. Still, the gap is eye opening.

Meanwhile, Seeking Alpha reported just about ten days ago that U.S. solar panel maker Evergreen Solar will shift its manufacturing from Massachusetts to China.

Suntech is seeking a 30 percent investment tax credit provided in the stimulus package that applies to U.S. solar manufacturing, while Evergreen is seeking lower manufacturing costs.

The irony is striking.

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November 4, 2009

Buffett Buys Burlington Northern: The Green Dimension

Warren Buffet’s decision this week to acquire railroad freight company Burlington Northern Santa Fe highlights questions about the the business cycle in the U.S. and the prospects for rail transport.

It also shines a light on the influence of sustainability on corporate strategy. It is well established that rail transport is the most efficient form of surface transportation. (I looked at passenger rail transport in a previous blog post.) Beyond that, BNSF has for years been pursuing a green strategy.

The company has for years been working to improve the energy efficiency of its operations and has achieved a 7.7% increase in fuel efficiency since 1999. It has deployed a variety of clean and energy efficient technologies, some of them experimental, in its trains and in its cargo facilities. It claims, for example, to be the first rail carrier in North America to use zero-emissions electronic wide-span cranes at some of its intermodal facilities. In 2007, BNSF became the first railroad to pilot the use of low-emissions, natural-gas hostler trucks to move containers at their Los Angeles Hobart Intermodal facility. BNSF is the first railroad in the world to develop an experimental hydrogen fuel cell switch locomotive.

The company has also been assiduous about engaging with business groups and non-profits on issues of climate change and sustainability. It voluntarily reports its greenhouse case emissions to the Carbon Disclosure Project and the Business Round table. The Carbon Disclosure Project ranked the company second in the Global 500 industrials category of its Carbon Disclosure Leadership Index, with a score of 85 out of a possible 100.

And Goldman Sachs singled the company out earlier this year in a report I wrote about that looked at the impact of climate changes on investment strategy and company performance. According to the Goldman report, BNSF ranks in the 90% percentile of the road and rail sector in return on capital, and gets the top climate change score. As Goldman Sachs has pointed out, while climate change may reduce demand for freight-intensive products it will increase the value of energy- and carbon-efficient transport.

Clearly many factors were behind Buffet’s decision to buy the railroad (including, he said, the fact that his father never got him a train set as a kid). But the company’s leadership position in climate change strategy and sustainability did not hurt.

What do you think?

4 Comments

Filed under efficiency, sustainability, transportation

October 28, 2009

Smart Grid Grants Favor Meters and Energy Displays

Yesterday President Obama announced $3.4 billion in grant awards for smart grid investments under the American Recovery and Reinvestment Act (ARRA), the stimulus law passed earlier this year.

Among the goals of this spending are infrastructure improvements to make it easier to integrate renewable energy sources into the power grid; improve grid reliability and reduce outages, which the President said cost Americans over $150 billion per year; and eventually reduce consumers’ energy bills. (The cost of power outages is something I cited as support for grid investments in an earlier post on the smart grid.)

Smart Meters a Favored Technology

The president’s talk of reduced energy bills is a reference to the strong support for smart meters reflected in the grant awards. Most of the projects the government is supporting with these grants involve the installation of smart meters. As the president said,

Smart meters will allow you to actually monitor how much energy your family is using by the month, by the week, by the day, or even by the hour. So coupled with other technologies, this is going to help you manage your electricity use and your budget at the same time, allowing you to conserve electricity during times when prices are highest, like hot summer days.

The “other technologies” he mentioned include in-home energy displays, the focus of a market research study I am currently wrapping up and which should be published in the fourth quarter of this year.

One Million In-Home Energy Displays

According to an administration summary of the grants, the funded projects, when fully implemented, “install more than 1 million in-home displays, 170,000 smart thermostats, and 175,000 other load control devices to enable consumers to reduce their energy use.”

These grants are a boon for the winning utilities and the vendors they have selected as suppliers and implementers. And, assuming these projects largely deliver on the hope-for benefits, these projects will prime the pump for large-scale deployments over the next 5-8 years in the U.S. and, over a longer time period, globally.

Stimulus Temporarily Stalled the Smart Grid Market

Over the last couple of months, I’ve spoken to many technology vendors in this space, as well as utilities that had submitted smart grid proposals. The general consensus among this group about the impact of the stimulus was that it had the comically ironic effect of putting the smart grid market in a state of suspended animation. With billions of dollars of grants in the balance, any utility that had been contemplating making an investment in smart grid technologies had every reason to put it on hold until it learned whether the government was going to foot part of the bill.

So the vendors watched and waited (after helping their prospective customers with their grant applications).

Some Utilities Will Proceed Even Without Grant Money

I spoke to one utility today who had ambitious plans for smart meter and in-home deployments in its service area. The utility, a cooperative, did not receive a hope-for grant to fund half of the over all expense. They are disappointed but say the intend to press forward with their plans, albeit on a slower deployment schedule. And they hope to submit a revised grant proposal for a second phase of awards.

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Filed under efficiency, grid, in-home displays, smart meters

October 22, 2009

Lowering the Cost of Carbon Footprinting

Despite the proliferation of carbon accounting tools on the market today, calculating carbon footprints—especially product footprints–is still very time-consuming. According to David Walker, Director of Environmental Sustainability at Pepsico International, most tools “pick up the automation at the point that most of the work as been done.” The work Walker refers to is the painstaking gathering of data. Since Pepsi wants its carbon foot prints to meet the standards of third-party certification organizations such as Carbon Trust, it aims for a relatively high standard of accuracy and methodological transparency.

While carbon footprinting may seem like it’s mostly about counting carbon, many companies have found that conducting corporate or product-line carbon footprints deepened their understanding of their own operations. This in turn exposed opportunities to lower carbon emissions, increase efficiency or cut costs. If carbon footprinting is costly and time consuming, complying with carbon regulations is burdensome. And companies will be slower to adopt it voluntarily, deferring its benefits to companies and to the environment.

Pepsico’s Basket Approach

Pepsico is keenly interested in understanding the carbon footprint of its products but has to reckon with the high costs of doing so and limited resources available for the task. The company’s strategy is to be selective rather than exhaustive. Pepsi defined a “basket” of some 25 products to analyze (out of some 6000 product varieties it sells globally). The products were selected to enable the company to draw broad conclusions from a limited sample size. In some cases, for example, Pepsi chose a single product and computed its footprint for multiple markets in which it is distributed. That allows the company to isolate the effects of variations in sourcing and distribution on the products’ carbon footprint. In other cases Pepsi has looked at unlike products in the same market, which can reveal the impacts of raw materials and manufacturing processes. The company works with the Earth Institute at Columbia University to perform the footprinting.

This approach, coupled with the company’s focus on “compressability”—the Pepsi term for the potential to reduce a product’s carbon foot print—will help the company prioritize its carbon reduction efforts on the products that will yield the greatest return on their effort.

A Path to Better Tools

While Pepsi’s approach is smart, there is still room for improvement in lowering the costs of carbon footprinting and life cycle assessments in general. Some groups are taking innovative approaches to this problem. The Applied Sustainability Center at the University of Arkansas is developing an open-source lifecycle assessment tool. The idea is for companies to contribute what they learn about their own processes to a database. The tool will aggregate the information submitted and overtime will provide increasingly precise models of the environmental impacts of different processes. As adoption of the tool grows, its usefulness should grow, and the costs of conducting lifecycle analyses should drop. Significantly, the tool aims to capture the value of aggregating this information while keeping proprietary, company-specific information private.

Another group with an approach to lowering the cost and improving the accuracy of carbon footprinting is AMEE, a small venture capital-backed firm that has built a Web-accessible database of carbon models and emissions factors. AMEE seeks to be the clearinghouse for the most accurate and up-to-date information about carbon emissions to enable companies ranging from enterprises to carbon accounting software vendors to lower the cost of calculating accurate carbon footprints. Want to know how much carbon was emitted to generate the 3 megawatt hours your plant in Scotland used during the night shift? AMEE aims to be able to tell you.

Eventually, I suppose, carbon will be as easy to meter as electricity. But that is years off. Until then, it’s interesting to see the innovations that are getting us closer.

If you have thoughts about how to bring down the costs of carbon footprinting, please consider leaving a comment and sharing your thoughts.