Category Archives: efficiency

April 11, 2012 · 11:11 pm

The Most Interesting Things Today

One of the most interesting things for me at today’s New York Times conference on the future of energy was a comment that U.S. Secretary of Energy Steven Chu made.

Thomas Friedman asked Secretary Chu what he would want to work on if he were just coming out of school today, a freshly minted Ph.D. Rather than choose a particular scientific or technological focus, his choice was “systems.” He cited the Toyota Prius as innovative system created from existing technologies.

That’s a pretty interesting answer.

Systems thinking is the key to unraveling some of our toughest challenges, particularly those related to energy and environmental sustainability. Everyone from scientists and technologists to individuals to corporate managers to policy makers ought to beef up their systems thinking skills.

The other interesting thing was a brief, low-key but mind-blowing presentation by Mitja Hinderks in which he explained how his little organization is going to cut global CO2 emissions by 25% with an innovative new design for an uncooled internal combustion engine that, compared to today’s engines, will have a fraction of the parts, a multiple of the efficiency, and could be swapped in and out of vehicles like a cartridge.

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November 1, 2011 · 9:51 am

Will Energy Efficiency Put Utilities Out of Business?

Utilities may find their primary markets pressured by improved energy efficiency and distributed generation. If they are unable to make up for lost revenue by entering new markets they may find the economics of their businesses under stress, challenging their ability to meet the needs of some of their customers.

The quandary the utilities are facing is analogous to that now faced by the U.S. Postal Service. Despite attempts to innovate and offer new services, revenues at the Postal Service are under pressure as customers shift to e-mail and commercial package delivery services. Now the Postal service says major budget and service cuts are required. And some of those services have no commercial alternatives, such as rural letter delivery. As the New York Times recently reported, the German postal service, by contrast, began adapting to changing telecommunications and e-commerce environmental years ago, and now offers a range of services in innovative ways that have helped keep it relevant to German consumers.

The McKinsey Quarterly has a provocative article about the energy efficiency quandary facing utilities. Looking at the European market, McKinsey’s analysis suggests that if existing energy savings technologies were employed selectively, a new home could consume around 90 percent less energy from the grid than it does today. Existing homes’ energy use could drop by 35 to 40 percent. This, says McKinsey, could cause utilities’ margins to suffer to the tune of 10 to 30 percent. McKinsey urges utilities to seek new sources of revenue, including

building fabrics (for example, roof and wall insulation), central systems (including heat pumps and lighting), appliances and electronics (energy-efficient white goods), “smart” applications (home area networks and energy storage devices), advanced metering infrastructure, microgeneration (for instance, small-scale wind turbines and solar panels), and the delivery of power for charging electric vehicles, as well as financing, insurance, and consulting services.

Consumers would likely be receptive to purchasing other energy-related goods and services from their utilities. Green Research recently surveyed U.S. consumers who have smart meters installed in their homes. Seventy percent expressed interest in getting expert advice to help them control energy usage, manage their energy bills or become more energy efficient. Of those, 68 percent said they’d like to receive that advice from their electric utility.

The implications are clear: utilities need to start exploring how to broaden the set of goods and services they offer to their customers. And regulators need to start lifting barriers to doing so. If not, some utilities might possibly find themselves unable to deliver electricity economically in the face of reduced demand.

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October 28, 2011 · 4:17 pm

Energy Management Aims to Be the Next Big Standard

Electronics Retailer Best Buy just announced it is adopting a new energy management system in its U.S. stores that it thinks will cut its energy use and carbon emissions by 15 percent. I’ve got a call coming up with the company’s head of environmental sustainability to find out more. The timing is great, because of the work we are doing on the new ISO 50001 energy management standard. I don’t know if 50001 is in the cards at Best Buy, but we’ll find out soon.

I’m spending a lot of time talking to companies about ISO 50001, which was published in June. There are questions about how fast it is going to be adopted and what this means for companies, their suppliers and the standards certification ecosystem. That’s why we are undertaking a study of the dynamics that will drive adoption over the next five years. (See my recent column on this topic.)

My background research includes a review of the literature about two older ISO standards: 9001, which deals with quality management, and 14001, which deals with environmental management. There are lots of views about why companies adopt such standards and what the benefits are. Generally there seems to be a mix of internal drivers (a company is seeking to improve its own performance) and external drivers (in the form of customer or regulatory pressure).

In the view of one standard certification expert I spoke with today, the ISO 9001 quality management standard was driven in large part by big companies that wanted to exact higher quality from their suppliers at lower cost. Rather than fielding an army of quality engineers running around the supply base to ensure compliance with their own quality standards, these companies pushed the responsibility (and the cost) of meeting quality standards onto suppliers, by requiring them to obtain ISO 9001 certification.

If ISO 9001 was driven by obligations to customers, ISO 14001 may have been drive by a broader set of obligations. According to one study, “The most significant motive for implementing ISO 14001 is enhancing corporate image, gaining marketing advantage, reducing customer pressure, and to improve its relations with communities and authorities” (Poksinska, Dahlgaard & Eklund, 2003).

ISO 50001 may have a similarly broad set of drivers. The standard establishes sound practices for energy management that should reduce risks and create a platform for continuous energy efficiency improvements. Companies may be motivated to adopt it to demonstrate mastery of their energy management, which is becoming an increasingly strategic issue. In addition, a growing number of companies are starting to take responsibility for the environmental and social performance of their supply chain. They are finding that their suppliers often account for a substantial share of their value chain’s economic impacts. So they may consider requiring their suppliers to obtain ISO 50001 certification as a way of getting a grip on their upstream energy use and attendant carbon emissions.

This is going to be an interesting area to study, with important implications for a variety of companies big and small. If your company would like to participate as a charter subscriber to the study, please drop me a line. And if you have any thoughts on the development of ISO 50001, feel free to leave a comment.

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July 13, 2011 · 1:31 pm

Finding Incentives for Renewables and Energy Efficiency

Government incentives remain crucial for supporting investment in renewable energy and energy efficiency in the U.S. But a welter of state, local and utility-specific incentives on top of federal programs make it a full-time job to keep up with what incentives might be available.

Fortunately, the North Carolina Solar Center at North Carolina state University is doing that job. They track and maintain information on incentives at the state and local level and publish a lot of that information at dsireusa.org. I’ve written about this resource in the past. I just wanted to highlight it again today.

DSIRE has a wealth of data that some companies are already integrating with their internal tools. I prepared this chart just to illustrate how the data makes it possible to home in on opportunities easily, saving lots of research. The chart shows the states with the greatest number of energy efficiency incentives in effect.

On the DSIRE site itself, you can click on a state or incentive type and get the list of specific incentives.

Take a look.

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April 29, 2011 · 8:21 am

Setting Goals for Environmental Performance

This is the season that many companies publish their corporate sustainability reports, and in those reports updates on their sustainability goals. Some companies have recently announced meeting or exceeding goals they’d set.  Apparel maker H&M, for instance, recently reported that it blew through its goal on the use of organic cotton. Others, such as Walmart (carbon emissions) and Starbucks (energy consumption) received attention (here and here) for falling short of some of theirs.

There are broad differences in how companies set sustainability goals and which goals they choose to communicate publicly. In my many conversations with sustainability executives it’s become clear to me that many of them are not sure they are going about this in the best possible way.

Which Goals to Set?

With global warming the most prominent public environmental policy issue, it’s increasingly common for companies to establish goals for reducing carbon emissions. The specifics vary—from a percentage absolute reduction versus a prior year benchmark, to a reduction in “carbon intensity”—but carbon emissions reductions goals are table stakes for companies seeking to establish sustainability credentials.

Beyond carbon, many companies sensibly identify goals related to their major environmental impacts, or ones thematically related to their business. Given the attention that e-waste has received, it makes sense that electronics manufacturers like HP and Dell have set electronics recycling goals. The Coca-Cola Company has set a goal of neutralizing its water footprint by 2020.

Some companies, especially service businesses but also products manufacturers, are in setting goals regarding the environmental impacts their customers have while using their products and services.  A common form of this is energy efficiency targets for products.

Where in the Organization Are Goals Set?

Where in a company do sustainability goals originate? Are they set from the top down? Are they derived from the bottom up? In our interviews, we’ve seen approaches that are all over the map.

We heard the story about the global packaged goods company whose CEO set a goal that the sustainability team thought was absurd, unrealistic and unachievable. The sustainability lead at a large retail and pharmacy chain tells the story of how his CEO went on television and publicly announced a carbon emissions reduction target that was 50 percent higher than what he had agreed to the day before–to keep the sustainability leader “on his toes.”

Some companies take more of what might be called a bottoms-up approach. Dell told me, for instance, that it sets its sustainability goals with reference to science, input from engineering teams, and the product roadmaps of key partners.

A major automaker tells me that they’ve seen success setting sustainability goals from “the middle,” meaning that mid-level managers are asked to study a problem and establish a goal. They get together with their peers across different functions and look at technology trends, projections for the future size of the vehicle fleet, consumer expectations, regulatory trends, competitor behavior and so on. Middle management then proposes goals and an executive committee reviews and ratifies them.

Which Goals to Communicate Publicly?

Some companies are very sparing in which sustainability goals they choose to communicate publicly, regardless of how many internal goals they may set. Alliance Boots, the British retailer, has dozens of business units operating in dozens of countries. Each unit has its own environmental goals. But the company overall has publicized just one quantitative target: to reduce the carbon footprint of “Boots legacy stores” by 30 percent by 2020 compared to 2005. Real estate management firm Jones Lang LaSalle  has communicated a handful of sustainability goals but only one specific, measurable one: to reduce its clients’ carbon emissions by an amount at least ten times greater than its own carbon footprint each year. By contrast, some of the electronics firms I’ve spoken with have literally dozens of specific, quantitative goals. And UK retailer Marks & Spencer has received much attention for the 100 commitments it made in 2007 and the additional 80 in 2010, many of which are quantitative and specific.

New Research on Sustainability Goal Setting

We are researching this topic further and intend to publish a study on best practices for sustainability goal setting. If you’d like to participate in our research, have any suggestions, or have your own best practices to share, please leave a comment or drop me a line.

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April 4, 2011 · 5:22 am

The Carbon Footprint of Bread

I came across a nifty study of the carbon footprint of bread, just published in the International Journal of Life Cycle Assessment. The study looked at bread produced and consumed in the U.K. The bottom line: the carbon footprint of bread ranges from 977 to 1,244 g CO2 equivalent per 800 g loaf. On their own those numbers aren’t that interesting,though the fact that carbon footprint exceeds the weight of the product itself, while not all that unusual, does makes one think.

Data from the referenced study

The study was interesting for what it revealed about the major sources of carbon emissions (the so called hot spots) in the life cycle of a loaf of bread . The study is also interesting because it compared the footprint as calculated using primary data from a specific U.K. bread supply chain against calculations using generic data from life cycle inventory databases. Using primary data tends to be costlier and more time consuming. So if generic data can suffice to acheive the goals of a life cycle assessment, it is a more economical choice.

According to the study, wheat cultivation contributes 35 percent of the carbon footprint, and consumption (including refrigerated storage and toasting) contributes another 25 percent. Assumptions about the amount of food consumers waste suggest that another 5-10 percent is contributed by waste bread being discarded by consumers. Packaging and transportation were relatively small contributors to the carbon footprint.

The hot spots were the same for primary-data analysis and the secondary-data analysis, supporting the idea that the goal of a study should determine its data-gathering strategy. Carbon-labeling–providing data to consumers supposedly to enable them to make purchase decisions based on product carbon footprints–requires data from specific product supply chains. But other uses, including identifying the hot spots so a manufacturer could focus on those for improvement, could well be supported by secondary data.

My favorite finding from the study is that whole wheat bread has a lower carbon footprint than white bread. Milling the flour for white bread uses about 23 more energy per loaf, because it uses the grain less efficiently. So eat healthier and reduce your carbon footprint.

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March 25, 2011 · 3:29 pm

Life Cycle Assessment for Suits

We’ve kicked off a new research project looking at the market for life cycle assessment services. Life cycle assessment (LCA) is going to have a major impact on the world of sustainability in the coming years. LCA involves looking in a holistic way at a system that produces products or services through all stages of its life cycle, from acquiring raw materials to manufacturing to use and recycling or disposal.

Why are we looking at LCA? Our most recent study of senior sustainability executives revealed the growing importance of life cycle assessment to the sustainability movement. A number of the executives cited LCA as the cornerstone of their sustainability programs. Others were at work on simplified LCA-lite measures, which they felt would be more accessible to smaller companies that may not have the resources to conduct full LCAs. A prominent executive at one well known company I spoke with suggested that there is a need for greater research and information on LCAs for the use of business executives who are responsible for their companies’ sustainability programs.

Life cycle assessment is about 50 years old. Initially, it was developed in response to concerns about uncertain access to resources, including energy. In its early years LCA tended to be employed in industries that handled scarce, toxic and/or regulated materials or (and I’m speculating a big because I haven’t fully researched it yet), where margins were low and the benefits from material stewardship are high.
LCA is a highly technical discipline and its practitioners tend to be highly trained and with advanced degrees. Executives with technical responsibilities, such as process engineers and manufacturing heads, are ones who traditionally have commissioned made use of LCA studies.

Source: Green Research

Today, the application of LCA is beginning to change, making this an excellent time to do fresh business-oriented research in this area.  First, interest in the topic is spreading beyond technical management at companies, reaching strategy and even marketing functions. Marketers are interested in LCA for its potential in supporting ecological product claims. And sustainability minded executives generally are interested because LCA provides a structured way to understand a company’s environmental impact. (That’s what I mean by “Life Cycle Assessment for Suits.”) Interest in LCA is spreading not just within companies but across industries. We now have apparel makers and consumer packaged goods makers investing in LCA.

Our research will be conducted over the next 5-6 weeks. If you have expertise in LCA–as a practitioner, a tool vendor or a user of LCA services (such as a sustainability executive)– and would like to have input to our research, please leave a comment. I’m also happy to hear from anyone else with thoughts on the topic as well.

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March 15, 2011 · 1:57 pm

How Finance Departments Do Sustainability

When your company makes sustainability a part of its strategy, it looks for ways to embed sustainability thinking through the organization. In some departments, it’s pretty clear what that entails.

  • Product development may seek sustainably sourced materials or designs that are energy efficient to operator or easier to recycle
  • Supply chain may set sustainability standards for suppliers
  • Manufacturing may focus on improving the energy and water efficiency of processes and the management of waste
  • Facilities and IT have a lot of low hanging fruit in energy efficiency
  • Transportation and fleet management groups may look at alternative fuel and hybrid vehicles and route optimization
  • Human resources may take on employee engagement programs
  • Marketing and public affairs groups will take on responsibility for engaging with external stakeholders and communicating about your company’s sustainability efforts

Where does your finance department fit in all of this? Finance can, of course, work to improve the efficiency of its own operations. The finance department at Yale University, for example, recently announced that it switched from paper to digitial distribution of its financial report to save paper and money. Some banks offer “green treasury” services to eliminate the paper involved through the treasury function.

But your finance department can play a much larger role in supporting your sustainability strategy than just improving its own operations. Finance creates leverage. And sustainability-minded finance can be a key ally to sustainability leaders.

We recently interviewed senior sustainability leaders at more than 30 major companies in North America and Europe. In that research we heard a few things about how finance departments are behaving at sustainability minded companies. (Our latest research report, based on those interviews, is available for purchase at an introductory price here.)

A few finance practices emerged that sustainability leaders should be aware of:

Allocate a pool of capital project money to the sustainability department. At most companies, central sustainability budgets are small. Capital projects, even those intended to to deliver sustainability benefits, are funded out of other departmental budgets. And sometimes sustainability projects get pushed aside by a department’s other priorities. To ensure that some worthy projects get done each year, one company we spoke with allocates a pool of money to be used for capital projects directly to the sustainability group. The sustainability department is able to use those funds to support a couple of capital projects of its choosing. And it also works  with other departments to influence their budgets to take on other worthwhile projects. You might want to see if your department can obtain a mini capital budget of its own in the next budget cycle.

Calculate risk-adjusted returns realistically. At some companies, sustainability projects have a hard time getting funded because they don’t appear to pass the company’s rate-of-return hurdle. The thinking goes like this: Why invest scarce capital in a lighting retrofit when a new product launch could deliver a rate of return many times greater? But the reality is that many sustainability projects–especially those centered on improving efficiency–have highly predictable rates of return and present almost no risk at all. Other projects they might compete with, such as new product launches or marketing campaigns, may be inherently riskier. Thus sustainaiblity initiatives can have a superior risk-adjusted rate of return. Make sure your finance department calculates risk-adjusted returns appropriately..

Sustainable 401K. Some companies tell us that their sustainability program is motivated in large part by a commitment to their own employees, who value a socially and environmentally responsible workplace. At such companies, it makes sense to look at financial benefits, such as 401K programs, through a sustainability lens. A growing number of 401K plans offer socially or environmentally responsible investment options. You finance department can help choose appropriate options for your company.

How is the finance department supporting sustainability at your company? Please leave a comment to discuss it with us.

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November 8, 2010 · 3:45 am

How Well Do Utilities Talk About the Smart Grid?

As background for a large Green Research study of consumer attitudes about smart meters and the smart grid, I looked at utility Web sites to see how utilities were talking to their customers about the smart grid.

There are nearly as many benefits of smart meters as there are utility companies, according to my survey. Across 25 utility company Web sites, some 20 or so distinct benefits were listed, from improved meter accuracy to saving money.

It was interesting to see how utility claims aligned with consumer attitudes, and where they didn’t.

The most popular claim from the utilities I looked at, by 14 of the 25 utilities, was that smart meters would enable consumers to manage their own electricy use better. Some examples:

Southern California Edition – “…you can better manage your electricity use through new tools, programs and services”

Georgia Power – “You’ll be able to better manage your energy usage and control your energy bill.”

American Electric Power -  ”It is designed to give customers greater control over their energy usage and ultimately their bills…”

Duke Energy – “…provide customers with additional information that may help them use energy more efficiently…”

My research suggests that these utilities are right to promote the ability of smart meters to help consumers better manage their energy use by giving them better information. Consumers in the focus groups we conducted responded very favorably to the idea that better information would give them greater control over their energy use. And nearly two-thirds of consumers nationally who already have smart meters in their homes say they find the benefit of receiving actual rather than estimated bills “extremely valuable ” or “very valuable.”

The ability of smart meters to enable new rate plans was the second-most common benefit touted on utility Web sites. Eleven utilities made that claim, including these:

Alliant Energy – “New and improved rate options and programs”

Dominion – “In the future, Dominion may offer dynamic rates which will help you save on your monthly bill if you conserve power during high-demand periods.”

Alabama Power – “Once the program is installed, we’ll be able to offer innovative rate options that meet your lifestyle.”

Consumers are keen on saving money, and if they believe they can do so with time of use plans, they will be interested. About half the smart meter consumers in our study said they found the prospect very or extremely valuable. On the other hand, the most widespread concern consumers have about smart meters is that they may lead to higher bills. And a quarter of the respondents to our survey who cited such concerns said their concerns would be allayed if they were not forced to switch to a a time of use plan. Utilities need to proceed with caution when they speak about time of use plans.

Despite well publicized concerns about privacy risks associated with smart meters and consumer data, utilities deploying smart meters often make the claim that smart meters can actually improve consumer privacy, by making it unncessary to send workers to consumers’ property to read their meters. Nine of 25 utilities looked at made this claim. Apparently, the claim is plausable to consumers. Over 40 percent of smart meter consumers say they find such a benefit very or extremely valuable.

San Diego Gas & Electric – “More Privacy: Because smart meters send information electronically to SDG&E daily, SDG&E’s meter readers will no longer have to enter your property.”

DTE Energy – “…less intrusive for you. Once installation is complete, DTE Energy will not enter your yard, home or business on a regular basis.”

Oncor – “Eliminates a person coming to read meter at your property”

Our research discovered that consumers want to understand not only how they might benefit from smart meters but why utilities are backing smart meter deployments. Utilities would do well to emphasize that the smart grid can help them operate more efficiently and respond faster to power outages. Only 6 of the utilities we looked at emphasized faster outage response time as a benefit.

If you’d like to know more, or are interested in tailored program to improve your understanding your own customers’ attitudes, please don’t hesitate to drop us a line.

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December 2, 2009 · 2:33 am

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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November 24, 2009 · 2:03 am

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.

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November 4, 2009 · 11:53 pm

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 · 10:36 pm

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 8, 2009 · 12:04 am

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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July 28, 2009 · 7:02 pm

My Clean, Green, Sustainable Reading List

Over the last few months I’ve been reading through the literature on clean tech, energy and sustainability. In case you are looking for suggestions, I can recommend any or all of these. If you have any reactions or suggestions for further reading, please consider leaving a comment.

Solar Revolution: The Economic Transformation of the Global Energy Industry
Solar Revolution” provides an excellent overview of the spectrum of solar energy technologies and the prospects for the growth of solar energy. It is the

most thorough treatment I’ve ever read on the subject. Travis Bradford presents a holistic model comparing the total cost of solar energy with grid-based electricity alternatives and finds that solar is already more cost effective than many people realize. He also develops a sophisticated and persuasive model of the growth of the solar industry to show convincingly that solar is destined to become “the preferred energy choice for a large majority of locations and applications.”

Earth: The Sequel: The Race to Reinvent Energy and Stop Global Warming
Interesting and inspiring overview by Fred Krupp, president of Environmental Defense Fund, of the many technologies that are pointing the way to a carbon-free future and a chance of averting environmental catastrophe. Plenty of specific examples and some colorful characters as well. The book returns repeatedly to the importance of creating a cap and trade system in the U.S. It’s logic is as good as any I’ve seen, but it gives the carbon-tax approach short shrift (which is the author’s prerogative.) An engaging read for folks newly wondering how the world will get past fossil fuels.

Harvard Business Review on Green Business Strategy (Harvard Business Review Paperback Series)
Good collection of some classic and more recent articles on the topic of Green Business Strategy, including must-read “A Road Map for Natural Capitalism” by Amory Lovins, Hunter Lovins and Paul Hawken.

Getting Green Done: Hard Truths from the Front Lines of the Sustainability Revolution
Charming and witty look at how sustainability happens–and doesn’t–at real companies. Real-world, nitty-gritty examples mixed with some punditry and policy, this book is a good complement to the literature about greening and sustainability. And author Auden Schendler is an engaging storyteller.

Making Sustainability Work: Best Practices in Managing and Measuring Corporate Social, Environmental and Economic Impacts (Business)
Dry but systematic and tailored to the needs of executives and corporate sustainability professionals. Recommended for those kicking off or managing corporate sustainability initiatives.

Strategies for the Green Economy : Opportunities and Challenges in the New World of Business
Nice, crisp and current overview of green/sustainability from corporate and corporate marketing perspective by long-time pundit and consultant Joel Makower.

Green to Gold: How Smart Companies Use Environmental Strategy to Innovate, Create Value, and Build Competitive Advantage
Packed with light case studies and some handy frameworks. If you are doing corporate sustainability you should probably read it, but but I suspect it works best as a lead generator for the authors’ consulting business.

The Clean Tech Revolution: The Next Big Growth and Investment Opportunity
Good overview of the clean tech space.

The Prize: The Epic Quest for Oil, Money & Power
Liked it a lot. See my thoughts at elsewhere on this blog.

I welcome your comments on the above or your suggestions for other reading.

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