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?

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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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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.

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October 14, 2009

Branding Green Research

As my consulting practice has grown, I’ve decided to invest in developing the Green Research brand as the umbrella under which to work. Next step: creating a logo for Green Research.

Crowd Sourcing the Design Work

I decided to crowd source the logo design on crowdSPRING, an online community of designers. I was inspired to take this approach by Charlene Li, technology strategist and founder of consultancy Altimeter Group, who used this approach for Altimeter’s logo. (Charlene and I were nearly colleagues; she left Forrester Research to found Altimeter shortly before Forrester purchased my company, Jupiter Research.)

I recently posted a creative brief on crowdSPRING and quickly attracted many dozens of attractive designs from designers competing for my business. Now I have about a week to choose the winning design and, like Charlene, I would like to invite my readers to weigh in on what logo they think most effectively conveys Green Research brand attributes.

Feel free to browse the current options and vote for your favorites. There’s about a week left, so if you are interested, don’t delay. For more background, read on.

The Creative Brief

Here’s a summary of the creative brief I provided:

Green Research is a business advisory, strategy and market research consultancy. Industry focus areas include clean technology markets, alternative energy, corporate sustainability, Internet and information technology. The principal (me) is a seasoned executive with broad business experience across many industries and functions.

The mission of my research and advisory work is to provide clients with -insight- that guides action that produces positive, sustainable results. The results that interest me are not merely classic business goals like increasing market share, selling more toothpaste, or up-selling customers. To me, those are only interesting results if they can be accomplished without undue harm to people or the environment. And they are really interesting results if they embody sustainable business practices that spread prosperity.

Key brand attributes I would like the logo to convey:  current, tech-savvy, intelligent, analytical, quantitative, professional, solution-oriented.

No Leaves or Solar Panels

While I specialize in projects in those “green” areas, my work is not limited to those areas. A common denominator of my work is that my clients are technology intensive businesses. Over time this has included not only energy tech/clean tech but information tech, Internet and even medical technology. Consequently, I want a design that is compatible with and suggestive of the “green” area, but not exclusively so. Clients in the green space or with green aspirations should be able to relate to the connotation of environmental/clean tech/sustainability. But clients who are general business or technology companies should not be burdened by an association that does not apply to them. So: no trees, leaves, wind turbines, solar panels or other green clichés.

Vote Now

So I’d love it if you’d like to browse the candidate logos and cast your votes for the ones you prefer. There’s about a week left, so vote today!

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October 8, 2009

The Supply Chain a Focus of Sustainability Strategy

I am excited to highlight my newly published research report on supply chain sustainability.

The report draws on a survey of supply chain executives at 74 companies as well as interviews with firms such as Alcatel-Lucent, Coca-Cola, Diebold, Dow Chemical and Staples. Eric Klein, a quantitative market research jock formerly of AMR Research, designed and processed the excellent survey.  And co-author Paul Baier, head of climate consulting for Groom Energy provided great direction for the research and conducted the interviews together with Eric . The report was published last week by GTM Research.

Here are some of my favorite highlights from the research:
Three-quarters of respondents to our survey believe that their company’s environmental stance will have a material impact on customer relationships within the next three years. Just over third of them feel the issue is material with customers today.

Energy efficiency is by far the most popular sustainable supply chain activity right now. This is due to a number of factors, including the relative ease with which energy efficiency programs can be implemented and the measurable cost savings and associated carbon footprint reductions they deliver. Recent volatility in energy prices and the rising profile of energy policy on the national level may also play a role.

Many companies have not yet integrated the systems that manage their environmental information with those that manage their supply chain activities, presenting a hurdle for those companies seeking to make environmental concerns a factor in supply chain design and operations. This is an opportunity for systems integrators and tech vendors who can help companies surmount this challenge. Forty-five percent of respondents to our survey say they have just begun to integrate those systems, and nearly a quarter say they are dealing with numerous disconnected applications, databases and spreadsheet components–which are ripe for rationalization and integration.

A minority of respondents to our survey say they currently participate in third-party sustainability reporting initiatives, such as the Carbon Disclosure Project (CDP).  But, 80 percent of respondents say they will be reporting in the next 12 to 24 months. This is one of the facts that led me to laud the CDP in a recent post.

A significant majority of companies believe that greening their supply chains will pay off over time, in some combination of brand enhancement, efficiency gains and cost savings. However, many companies today say they struggle to communicate the financial rationale for sustainability programs.

Overall, supply chain spending plans remain fairly firm this year despite the recession. A majority of the respondents to our survey said that their 2009 supply chain spending will increase versus 2008 levels, by an average of 11 percent. In aggregate, respondents are increasing spending by 3.8 percent.

We segmented respondents to our survey based on the number of supply chain sustainability initiatives they were engaged in. This led us to classify 30 percent of respondents as sustainable supply chain leaders. Leaders, we found, are more likely to incorporate environmental concerns in the design of their supply chain and to review the design at least annually. They are three times as likely as sustainable supply chain laggards to believe that their business relationships with customers are materially dependent on their environmental stance; and they are substantially more likely than laggards to anticipate hard and soft payoffs from embracing sustainable business practices.

Based on this and other research I’ve done, here’s a short list of principles for sustainable supply chain success:

  • Listen to your customers – and understand that sustainability is increasingly a concern of theirs, and look for opportunities for competitive advantages.
  • Measure ROI, but be flexible about how to calculate it.
  • Be open to experimentation. Sustainability in the supply chain is an emerging area, and most companies are still learning. Be willing to experiment to find out what works.
  • Adopt a portfolio strategy: Mix quick-wins with initiatives offering a longer-term payoff.
  • Compelling strategies deliver more than cost savings. They also create new capabilities for customers.
  • Exploit all opportunities for cost savings from energy efficiency, transportation, and packaging.
  • Invest in public disclosure of GHG inventory through programs like CDP, as your competitors are or will do so soon.

I think it’s a pretty good look at sustainability in the supply chain. If this is an area of focus for you, I suggest you pick up a copy of the report. (I can get you a modest discount, too. If you’re interested, drop me a line.)

Have you identified principles for sustainable supply chain success? If so, please consider leaving a comment and sharing your insights.

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October 1, 2009

Unintended Consequences, Part III: Electricity vs. Water

The latest installment in my compilation of the unintended consequences of new energy technologies: “clean” power projects can be giant water hogs. (Here’s part I and here’s part II.)

The New York Times reported today that utility-scale solar energy projects in the sun-rich but water-poor Southwest and California are running into obstacles as project developers compete with local interests for access to water. One proposed solar project in Nevada, for example, would have used some 1.3 billion gallons of water per year.

If water is the new oil, water-guzzling energy installations will face justifiable skepticism, especially in dry areas.

The article references BrightSource, a solar developer with a relatively less water-intensive approach to power generation. It quotes BrightSource investor (and my new favorite VC) Alan Salzman of VantagePoint Venture Partners explaining his decision to invest in BrightSource:  “Our approach is high sensitivity to water use …. We thought that was going to be huge differentiator.”

As alternative energy sources are developed and deployed, it clearly critical that investors, developers and regulators consider the big picture environmental impacts of new projects.

What’s your perspective?

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September 26, 2009

The Multidisciplinary Challenges of Clean Tech

I am having a blast covering clean tech from a research and consulting perspective. What is it that makes clean tech such a stimulating area?

The panel discussions at the excellent Financial Times conference on the U.S. energy business yesterday prompted me to reflect on this question. (You can see my conference tweets here.)

Yes, the opportunities are huge. And yes, the core problems the sector is tackling, including climate change and energy availability, are critically important. Beyond that, though, there’s this: the hurdles facing this set of industries are high. If you like hard challenges, clean tech has a lot to offer. Consider these challenges, all of which surfaced in discussion at the conference.

Image representing A123Systems as depicted in ...
Image via CrunchBase

Scientific and technical. Researchers are working to break new ground in areas ranging from basic materials science in photovoltaics and batteries to engineering and systems design in smart grid. No new scientific breakthroughs were announced at the conference but there was buzz about the successful IPO of battery maker A123 Systems. It was observed that this IPO was not a mere liquidity event for the investors. It was a critical capital infusion necessary to enable the business to scale up while continuing to perfect its technology.

BP p.l.c.
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Political. This area is way more political than IT or even financial services, two areas where I’ve spent a good chunk of my career. From BP America chairman Lamar McKay arguing for the “equitable” distribution of costs of moving to a low-carbon economy to PSE&G president Ralph LaRossa complaining of his utility’s struggle to get a permit to run a transmission line on an existing right of way, so much of the commercial and environmental promise of clean tech depends on clearing political hurdles.
Financial. The financial needs of the clean tech sector present a variety of challenges. A few examples:

  • Most consumers and businesses are not prepared to make capital investments to obtain electric power. So new financing mechanisms have had to be invented to make it easier for businesses and consumers to buy solar power, rather than solar panels.
  • Given the importance that coal is expected to continue to have for a long time, carbon capture and storage (CCS) is an experimental technology that is drawing  a lot of interest. But, as Alan Salzman of VantagePoint Venture Partners observed at the conference, it does not fit the model of venture capital investing.At least it’s been tough for start ups in this area to attract much VC.
  • Energy is a giant business, and most energy generation technologies need to be able to scale up to enormous volumes to be practical. Salzman’s panel was in agreement that while VC investments might be able to help get some of these companies to $100 million in revenue, they will need some kind of bridge financing to get them to the billion-dollar level that can establish their long-term viability.

Behavioral and Attitudinal. Some clean tech plays depend on changes in consumer behavior:  electric vehicles, for instance, obviously require a change in how consumers fill up their cars. Home energy management, a promise of the smart grid,will require a change in consumer attitudes too. According to a consumer survey conducted earlier this year by Pike Research, some 30% of consumers felt that “demand response” programs smack of “Big Brother.” (Demand response programs allow utilities, with the consent of consumers, to turn off or turn down certain power loads at consumer homes.) LaRossa of PSE&G said his customers were not ready for it.

Clean tech is a highly interdisciplinary field, and not only because the definition is broad. It’s also because its future depends on tackling challenges across science, finance, politics and consumer behavior. What more fun could you ask for?

If this post inspired any thoughts, please consider leaving a comment.

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September 22, 2009

Savvy Strategy Guides Carbon Disclosure Project

The Carbon Disclosure Project (CDP) is an organization with a clear goal, a simple premise and a savvy strategy. A research project on sustainability in the supply chain that I just completed (link forthcoming when the report becomes available for purchase) clued me into just how effective its strategy has been.

First, its goal. CDP was founded in 2000 with the goal of motivating investors, corporations and governments to take action to prevent climate change.

Its premise is the old management adage that “what gets measured gets managed.” By asking corporations to disclose their greenhouse gas emissions, CDP is implicitly asking companies to measure those emissions. And once companies get in the habit of measuring their emissions they are in a position to begin to manage and reduce them.

Indeed, it’s not hard to find companies that will tell you that once they began measuring their carbon footprint they gained a better understanding of how their business really operates and uncovered opportunities to improve efficiency and reduce costs.

It’s CDP’s strategy that I find most interesting. How does this nonprofit organization persuade companies across the globe to disclose information that, for most of them, never before required disclosure, not by statute, treaty or custom?

At its inception, CDP enlisted hundreds of institutional investors as backers. It persuaded them that prudent investing increasingly needs to take account of companies’ environmental performance and specifically their exposure to the regulatory and cost burdens of carbon abatement regimes.

With hundreds of big investors managing trillions of dollars in assets now interested in this information, CDP was able to begin asking corporations to supply it.

Amassing a set of influential backers is part of CDP’s strategy. Another is striking a business-friendly tone. CDP positions itself as an ally, not an adversary, of big business. It does not hammer companies to reduce their emissions; it merely asks that they comply with requests to disclose them. It does not shame non-compliant companies. Rather, it celebrates leaders. Its Carbon Disclosure Leadership Index, for example, ranks companies according to the quality of their disclosure, not their level of emissions. A friendly, non-judgmental tone eases the way for wary companies to begin to participate.

A third pillar of the strategy is exploiting network effects. It was this that I became aware of in my supply-chain research. Several of the major manufacturers—companies like Diebold and Alcatel-Lucent–said that they had begun to measure and disclose their greenhouse gas emissions to CDP at the request of their customers. Indeed Alcatel said it now planned to ask some of its own suppliers to begin reporting to CDP. This is the network effect in action. To accelerate the network effect, CDP has launched a supply chain initiative to enlist large companies to persuade their suppliers to begin reporting to CDP. “The information gathered,” notes CDP, “is used by senior management in over 40 of the largest organizations worldwide such as Walmart, PepsiCo and IBM.”

How successful has CDP been in encouraging companies to disclose their emissions? The number of companies responding to its emissions questionnaire has soared over the last five years, from 235 in 2003 to over 2200 in 2008.

Companies Responding to CDP

Companies Responding to CDP

CDP is seeing improvement in the quality of reporting as well as the number of companies participating. And it is racking up a growing number of testimonials from participants supporting the premise that measuring and disclosing their carbon footprint has already produced tangible business benefits.

Do you have any experience with the Carbon Disclosure Project and its impact on business? What do you think of the strategy? I’ll look for your comments below.

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September 15, 2009

Carbon Footprinting at CPGs

At the Sustainability Stakeholder Engagement conference in New York today The Carbon Trust, a UK non-profit tasked with reducing carbon emissions, presented alongside PepsiCo International. The two have worked together to calculate the carbon footprint of dozens of Pepsico products.

Pepsico got involved in footprinting its products in the U.K. in respose to rising consumer and business interest in the subject. Not only were consumers becoming “obsessed” with the idea, according to David Walker, Director of Environmental Sustainability at Pepsico, but Tesco, a crucial retail customer, was taking it very seriously as well.

Walker and Scott Kaufman of The Carbon Trust presented a case study of their work on Walker’s Crisps (potato chips). Walker emphasized the unintended communications complications that can arise from such a process. They found 80 grams of embedded carbon, for example, in a 34.5 gram bag of Walker’s Crisps. How do you explain that to consumers, Walker mused.

Because my post on the cost of carbon footprinting has been so popular with my readers, I took the opportunity to ask Walker about their costs of calculating carbon footprints.  He cited a license fee that The Carbon Trust charges, which covers the costs to certify the footprint and confers the right to use the Carbon Trust logo.  That fee, he said, ranges from $10,000 to $30,000.

Beyond that, the process of calculating the footprint is fairly labor intensive. Walker said it took about 150 person-hours to do a footprint analysis, simply too costly to do for all of Pepsico’s 6000 SKUs (products).  This is a challenge that will affect any large consumer package good (CPG) manufacturer with a diverse product line. Both companies are seeking a more efficient and scalable process than the one they have now, which relies largely on spreadsheet models.

In recent months, probably a dozen of vendors, both ERP software companies as well as pure-play carbon footprinting software vendors, have stepped up to offer solutions to this problem, but there is a dearth of practical experience so far to attest to the value of those solutions.

If you have any case studies to share or other comments, please feel free.

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August 13, 2009

Is a Near-Empty Train Worse than Driving?

Acela Express #2004

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Riding between New York and Boston last week on a comfortable and uncrowded Amtrak Acela train it dawned on me that my comfort came at a price. An uncrowded train meant Amtrak was not earning as much revenue as it might have from this run. Beyond that, I wondered, what of the environmental impact of my trip? Everyone knows that public transportation is greener than the private alternative. But what about a sparsely populated train? They are enormously heavy machines that consume most of their energy just moving themselves, before any passengers are added. When is a near-empty train worse for the environment than driving?
Transit Occupancy Sensitivity
Just in time, James Kanter of the New York Times blog Green Inc. wrote about a recent academic study out of the University of California, Berkley that compares the environmental footprint of public transit, air travel and private car travel.

The focus of the article is on the need to take a full life-cycle approach when comparing the costs and benefits of those modes of travel. You have to consider not just the energy it takes to move a passenger one kilometer (the standard measure used for comparison). You also need to look at the energy and environmental impact of building the vehicles and the support infrastructure (including airports, runways, train stations and tracks).

The study found that “total life-cycle energy inputs and greenhouse gas emissions contribute an additional 63% for onroad, 155% for rail, and 31% for air systems over vehicle tailpipe operation.” In a nut shell, there is a steep environmental cost incurred even before any travel occurs, especially for rail and air travel.

The implication of this, according to the study is that, while improving the energy efficiency of transport is important, for modes like rail and air its also especially important to explore ways of reducing the environmental impact of the non-operational components such as infrastructure construction.

It also means that improving the occupancy rate of trains and airplanes has a greater impact on the economics and environmental footprint than it does in car travel. Indeed, the study showed that while at average occupancy rates,

train travel is always more environmentally benign, a sparsely populated train can actually use more energy and emit more greenhouse gases per passenger-kilometer than full automobile.

To me the policy implications are clear: beyond supporting research in more energy efficient public and air transit infrastructure, continue to support the use of existing public transit systems, a large portion of whose environmental costs are already sunk.

Do you agree? What are your thoughts?

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