Lovins is Presidand founder of Natural Capitalism Solutions (NCS / www.natcapsolutions.org). NCS works with businesses, governments, and civil society to develop practices that are sustainable for both people and the environment. Her lecture focused on ways that the United States can pull itself out of the currrecession, while preserving natural and human capital.
This E-ssentialis an edited version of Lovins’ talk and the subseququestion and answer session. While some material has been cut and some language modified for clarity, the intention was to retain the substance of the original discussion.
About the Author
Trained as a sociologist and lawyer (JD), Hunter is also currently faculty at Bainbridge Graduate Institute and Chief Insurgent of The Madrone Project.
Lovins has consulted for scores of industries and governments worldwide. She has consulted with large and small companies including the International Finance Corporation, Royal Dutch Shell, Interface, Clif Bar, and Wal-Mart. Governmental clients include the Pentagon, U.S. Environmental Protection Agency, Department of Energy and other agencies, numerous cities, and the governments of Jamaica, Australia, and the U.S. She has also served as an advisor to the Energy Minister of the Government of Afghanistan.
L. Hunter Lovins is Presidand founder of the Natural Capitalism Solutions (NCS / (www.natcapsolutions.org). NCS educates senior decision-makers in business, government, and civil society to restore and enhance the natural and human capital while increasing prosperity and quality of life. In partnership with leading thinkers and Implementers, NCS creates innovative, practical tools and strategies to enable companies, communities, and countries to become more sustainable.
Trained as a sociologist and lawyer (JD), Hunter is also currently faculty at Bainbridge Graduate Institute and Chief Insurgof The Madrone Project.
Lovins has consulted for scores of industries and governments worldwide. She has consulted with large and small companies including the International Finance Corporation, Royal Dutch Shell, Interface, Clif Bar, and Wal-Mart. Governmental clients include the Pentagon, U.S. Environmental Protection Agency, Departmof Energy and other agencies, numerous cities, and the governments of Jamaica, Australia, and the U.S. She has also served as an advisor to the Energy Minister of the Governmof Afghanistan.
Read an Excerpt
1Entrepreneuring the Solutions: The Business Case for Climate ProtectionEntrepreneurs, companies, and countries are prospering from climate protection even in challenging times. This book describes how you, your family, your community, your company, and the world can profit from Climate Capitalism. The chapters present the good news about how you can become a part of the solution. They show that intelligent use of market mechanisms can solve the climate crisis not at a cost but as an investment, delivering enhanced profitability and a stronger economy as well as a better future for the planet. The best and fastest way to protect the climate is to reduce the unnecessary use of fossil energy. It is also the fastest way to an immediate return on investment. Cutting waste saves money, whether you are a business leader or head of a household.The case stories that follow demonstrate that entrepreneurship is alive and well. Which is good: without it no solution to climate change makes any sense. It is good for another reason. Entrepreneurs discover opportunity even in the midst of financial crisis. Throughout history, the nations that have innovated to meet human needs have ruled the world, economically, politically, and militarily. How we respond to the twin crises defining our generation—economic collapse and climate change—will very likely determine the world future generations will live in.The current economic crisis is extremely fluid. It could go in any of several directions. Commitments by global leaders to unleashing the green economy could turn the world around. Conversely, delay in implementing sustainable measures could deepen the current depression, now recognized as the worst since the 1930s.1Change will occur because past best practices are no longer sufficient to deal with the challenges facing the world. Businesses and industrial policy will implement the measures described in this book, or the world will face crises far exceeding what this young century has already brought.2The choices you make this year and next will determine whether you, your community, and ultimately your country come out of the economic collapse prosperous and in a position to secure the future you want, or whether life will become an unending reaction to emergencies that batter our ability to cope.3 Recent American history suggests there is reason for hope. The Architecture 2030 project points out:
During the 1970s oil crisis (an 11-year period from 1973 to 1983), this country, drawing on American determination and ingenuity, increased its real GDP by over one trillion dollars (in Year 2000 dollars) and added 30 billion square feet of new buildings and 35 million new vehicles, while decreasing total US energy consumption and CO2 emissions. This was accomplished with increased efficiency and with cost-effective, readily available, off-the-shelf materials, equipment and technology.4
A new reality, now recognized as “the sustainability imperative,” is inexorably driving companies to implement practices that are more responsible to people and the planet because they are more profitable.5 When the likes of Goldman Sachs and Deloitte report that companies leading in environmental, social, and good governance policies have 25 percent higher stock values, change is clearly under way.6 Or when an industry giant such as Walmart begins to require its sixty to ninety thousand suppliers to answer a sustainability scorecard tracking their carbon footprint, their impact on water and other resources, and their engagement with local communities, it is clear that behaving in more sustainable ways has moved from a chic niche position to a business imperative.7Melting Capital and the Warming ClimateTwo words define the current era: “climate” and “capitalism.”People raised on images of limitless possibilities, muscle cars, Western superiority in world markets, and a rising standard of living watched in shock as General Motors, the iconic American business, melted into bankruptcy in 2008. For many the magnitude of that collapse has yet to sink in. Nor has the recognition that Toyota became the world’s largest car company—subsequently supplanted by Volkswagen in the top spot—by riding to preeminence on the success of fuel-efficient vehicles that seem an affront to everything that made America great. GM’s reemergence from bankruptcy is similarly based on a small electric hybrid. The economic collapse of 2008 devastated communities and families, leaving more than 15 million people out of work, and sent unemployment over 25 percent in Detroit and other cities.8 It made economic recovery almost everyone’s top priority.Another meltdown, however, poses an even greater threat. In the fall of 2009, the United Nations warned that even if the nations of the world deliver on existing promises to cut emissions of greenhouse gases (GHGs), the globe will still warm beyond levels ever experienced by humankind by the end of the century, perhaps sooner. In his introduction to the film An Inconvenient Truth, Al Gore called climate change “a moral issue.” But at heart it is neither a moral nor an environmental issue. It is a crisis of capitalism. What is little recognized is that the twin threats, to the climate and to the economy, are linked in both cause and cure. Unless nations move aggressively to implement energy efficiency and renewable energy, key elements of the transition away from fossil fuels and necessary to save the climate, it is difficult to see how our economy can lift itself from recession or avoid further crises. Solving the climate crisis IS THE WAY OUT of the economic crisis.Capitalism to the RescueCritics argue that the science is uncertain. Absolutely. The goal of science isn’t infallibility or unanimity. Scientists don’t know how bad it’s going to be, or how fast climate chaos will proceed. If anything, the science is conservative in its predictions: for example, the observed reality of climate change is outrunning the scientific models, happening faster even than the most alarmed scientists predicted that it would.9But with all due respect to the great climate scientists, let’s assume that the skeptics are correct. They are not, and you would be a fool to go to Vegas on the odds that they might be, but in a sense, the science is irrelevant. For purposes of argument, let’s assume for a moment that the skeptics are right. If all you are is a profit-maximizing capitalist, you’ll do exactly the same thing you’d do if you were scared to death about climate change because smart companies are recognizing that you don’t have to believe in climate change to believe in its solutions. We know how to solve this problem at a profit: through Climate Capitalism. DuPont was among the early climate capitalists. About a decade ago the company’s leaders pledged to cut its carbon emissions 65 percent below their 1990 levels, and to do it by 2010. That’s a bit more ambitious than the United States, which still refuses to ratify the Kyoto Protocol, a pledge to cut emissions 7 percent below 1990 levels by 2010, will accept.Has DuPont joined Greenpeace?No. The company made its announcement in the name of increasing shareholder value.And it has delivered on its promise. The value of DuPont stock increased 340 percent while the company reduced its global emissions 67 percent. DuPont’s program had by 2007 reduced the company’s emissions 80 percent below 1990 levels. Doing this created a financial savings for the company of $3 billion between 2000 and 2005.10 The company’s climate protection program showed it costs less to implement energy savings measures than it does to buy and burn fuel. In short, DuPont was solving the problem at a profit. In 1999, DuPont estimated that every ton of carbon it no longer emitted saved its shareholders $6. By 2007, DuPont’s efforts to squeeze out waste were saving the company $2.2 billion a year. The company’s profits that year? $2.2 billion.11DuPont became a company that’s profitable because it’s protecting the climate. DuPont is not the edge of the envelope. Back in the 1990s, STMicroelectronics, a manufacturer of computer chips, set what Jim Collins, the business author, calls a BHAG: a big hairy audacious goal. STMicroelectronics pledged to achieve zero net CO2 emissions, becoming carbon neutral, by 2010 while increasing production forty-fold. When the company made this pledge it had no earthly idea how to achieve it, but figuring it out drove corporate innovation, taking STMicroelectronics from the number-twelve chip maker in the world to number six. Along with winning awards, ST reckoned that by the time it had reached its goal, it would have saved about a billion dollars.12Natural Capitalism Solutions (natcapsolutions.org) and other sustainability consultants work with such companies to help them cut waste, transform how they make products, and implement more sustainable ways of doing business. One company with which NCS worked had a practice of leaving its 6,300 computers and monitors turned on 24/7. Various urban myths about shortening the life of the computer by turning it off, or claims that the IT department required them to be left on, had led the company to waste energy and money. NCS consultants pointed out that simply issuing a policy that employees turn computers off when no one is in front of them would save $700,000 the first year alone.13 In the United States $2.8 billion a year is wasted simply because computers are left on when no one is using them. Such IT costs can represent a quarter of the cost of running a modern office building.14 In March 2010, Ford Motor Company announced that it would save $1 million each year by shutting off unused computers.15A team from NCS worked with a large distribution center, a 7-million-square-foot warehouse, in which five-hundred-watt lightbulbs shone down on the tops of boxes stacked floor to ceiling. The workers below used task lighting so they could see where they were going. Simply flipping a switch would save $650,000 dollars a year.16 Nationally we waste $5 billion to $10 billion each year leaving unnecessary or redundant lights on.17The savings from eliminating this waste are free—or better than free. And they exist throughout American businesses.Even where achieving energy savings that will protect the climate requires an up-front investment of money, it is one of the best investments a company can make. Diversey, a Wisconsin-based global provider of commercial cleaning, sanitation, and hygiene solutions, projects 160 percent return on its investments to cut its carbon footprint by saving energy.18 That is a just a bit better than you’re going to get on your 401 (k).In Europe and Asia, adherence to the Kyoto Protocol is driving competitiveness. Given how much energy was saved in the examples just recounted, it should come as little surprise that in 2008 American businesses, most of which have not implemented aggressive efficiency programs, used twice as much energy to produce a unit of GNP as their European and Asian competitors. The American Council for an Energy-Efficient Economy estimates that the U.S. economy wastes 87 percent of the energy it consumes.19 Far from constraining innovation, signatories to the Kyoto Protocol, which obliges them to save energy to cut carbon emissions, have signed on for innovation, saving money in the process.Risk Management in a World of Climate ChaosSmart companies now recognize that tolerating wasteful energy use and higher carbon emissions is a high-risk strategy. Geopolitical volatility, the unpredictability of energy supplies, price increases, threats to business from extreme weather events, and the risk of liability claims for failing to manage carbon output all make carbon reduction a good business strategy. The FTSE Index, the British equivalent of the Dow Jones Industrial Average, put it succinctly: “The impact of climate change is likely to have an increasing influence on the economic value of companies, both directly, and through new regulatory frameworks. Investors, governments and society in general expect companies to identify and reduce their climate change risks and impacts, and also to identify and develop related business opportunities.”20In 2007 Oxfam International released a report showing that natural disasters had increased from an average of 120 a year in the early 1980s to as many as 500 a year.21 Flood and windstorm disasters rose six-fold, from about 60 in 1980 to 240 in 2006. From the mid-1980s to the mid-1990s, 174 million people were affected annually by disasters of all types. From 1995 to 2004 this number rose to 254 million a year. The 2007 floods in Asia alone affected 250 million people. The International Federation of Red Cross and Red Crescent Societies agreed, estimating that natural disasters of all types now kill more than 120,000 people per year, double the toll in the 1990s.22These numbers represent not only a humanitarian disaster but also a business risk. In 2003 The Wall Street Journal reported that the second-largest reinsurance firm, Swiss Re, “announced that it is considering denying coverage, starting with directors and officers liability policies, to companies it decided aren’t managing their output of greenhouse gases.”23 The prescience of this statement came clear as claims from weatherrelated disasters rose twice as fast as those from all other mishaps.24 The year 2008 was the third-worst year on record for loss-producing events, with losses jumping from $82 billion in 2007 to over $200 billion, and more than 220,000 lives lost. The all-time record remains 2005, with $232 billion in insured losses. Costs are now growing ten times faster than premiums, the population, or economic growth.25“Nervous investors have begun asking similar questions of the insurers,” The Washington Post reported in 2007. “At a meeting of the National Association of Insurance Commissioners, Andrew Logan, insurance director of the investor coalition, representing $4 trillion in market capital, warned that ‘insurance as we know it is threatened by a perfect storm of rising weather losses, rising global temperatures and more Americans living in harm’s way.’”26 John Dutton, dean emeritus of Penn State’s College of Earth and Mineral Sciences, estimated that $2.7 trillion of the $10-trillion-a-year American economy is susceptible to weather-related loss of revenue, increasing companies’ off-balance-sheet risks.27Not surprisingly, investors are banding together to influence how companies deal with climate change. Large institutional investors are conducting shareholder campaigns urging companies to disclose climate risk and implement mitigation programs.28The Investor Network on Climate Risk comprises over eighty institutional investors collectively managing more than $8 trillion in assets. Launched in 2003, the network announced a ten-point action plan that calls on investors, leading financial institutions, businesses, and governments to address climate risk and seize investment opportunities. American companies, Wall Street firms, and the Securities and Exchange Commission (SEC) were asked to provide investors with comprehensive analysis and disclosure about the financial risks presented by climate change. The group pledged to invest $1 billion in prudent business opportunities emerging from the drive to reduce GHG emissions.On January 27, 2010, they succeeded, as the SEC issued an “interpretive guidance” advising that public companies should warn investors of any serious risks that global warming might pose to their businesses. Mary Shapiro, chair of the SEC, stated:
It is neither surprising nor especially remarkable for us to conclude that of course a company must consider whether potential legislation—whether that legislation concerns climate change or new licensing requirements—is likely to occur. Similarly, a company must disclose the significant risks that it faces, whether those risks are due to increased competition or severe weather. These principles of materiality form the bedrock of our disclosure framework.29
Indeed, even before this ruling, the Sarbanes-Oxley Act, the American corporate ethics law, made it a criminal offense for managers of a company to fail to disclose information, including such environmental liabilities as carbon emissions, that could alter a reasonable investor’s view of the organization.30 In France, the Netherlands, Germany, and Norway, companies are already required to report their GHG emissions.31Companies that fail to manage their carbon footprint face other risks as well. Since 2002, a British NGO, the Carbon Disclosure Project, has surveyed the Financial Times 500, the five hundred biggest companies in the world. Initially, only 10 percent of the companies that the CDP requested reports from answered. After all, who died and named the CDP God? In 2005, however, 60 percent of the surveyed companies replied. Such corporate giants as Chevron, Cinergy, DTE Energy, Duke Energy, First Energy, Ford Motor Company, General Electric, JP Morgan Chase, and Progress Energy made public commitments supporting mandatory limits on greenhouse gases, voluntarily reducing their emissions, or disclosing climate risk information to investors as a result of the CDP questionnaire.32Why the change? The threat of Sarbanes-Oxley played a role, but perhaps more proximately, the CDP represents 534 institutional investors with over $64 trillion in assets, almost a third of all global institutional investor assets. Any company interested in the capital markets would be advised to answer CDP’s questions. CDP now receives annual corporate carbon footprint reports from almost 80 percent of the Financial Times 1,800. Institutional investors use the CDP database to make investment decisions based on a company’s greenhouse gas emissions, emission reduction goals, and strategies to combat climate change. Companies that do not responsibly manage their carbon footprint are deemed not worthy of investment.The 2007 CDP report found that the world’s major companies are increasingly focused on climate change and that many see it as an opportunity for profit. Nearly 80 percent of respondents around the world considered climate change a commercial risk, citing extreme weather events and tightening government regulations. Some 82 percent said that they recognized commercial opportunities for existing or new products, such as investments in renewable energy. Globally, 76 percent of the companies said they had instituted targets and plans to reduce emissions, yet only 29 percent of American respondents had implemented greenhouse gas reduction programs with timelines and specific targets.33In 2008, companies got another reason to report their environmental profile. Walmart did more than respond to CDP’s survey—it hired the CDP to go to China and survey its suppliers there, and to notify them that if they wished to remain suppliers to the world’s largest retailer, they would report their carbon footprints.34Walmart: Capitalism’s 800-Pound GorillaThe new wisdom that cutting a company’s carbon footprint is simply better business is perhaps most convincingly demonstrated by the commitment of Walmart to implement more sustainable practices. In 2005 Walmart pledged: • To be supplied 100 percent by renewable energy• To create zero waste• To sell products that sustain resources and the environmentLee Scott, then Walmart’s CEO, announced goals to reduce energy use at Walmart stores by 30 percent over three years, double the efficiency of its vehicle fleet, and build hybrid-electric long-haul trucks.35 The company projects that this will save $300 million each year by 2015. Installing a device that limits truck idling is already saving Walmart $25 million each year.36In 2006 Walmart realized that replacing the incandescent bulbs in its own ceiling fan displays with compact fluorescent bulbs throughout its 3,230 stores (ten models of ceiling fans on display, each with four bulbs) could save the company $7 million a year. Chuck Kerby, the employee who did the math, reflected, “That, for me, was an ‘I got it’ moment.”37 Walmart realized that the same logic would benefit its customers, helping retain its image as the low-cost store. It set out to sell 100 million CFLs (compact fluorescent lightbulbs) in 2007—which would save its customers $3 billion on their electric bills.38 This also saved enough electricity to run the city of Philadelphia.39Recognizing that lighting in its stores represented about a third of its electricity costs, Walmart formed a partnership with General Electric to innovate lower costs for light-emitting diodes (LEDs). LEDs last longer, produce less heat, contain no mercury, and use significantly less energy than other types of lights. Over a three-year period Walmart invested about $17 million in developing an LED lighting system for its refrigerator cases. Installing these bulbs in its coolers in more than five hundred Walmart stores cut refrigerator energy use three-quarters, saved about $3.8 million per year, and reduced carbon dioxide emissions by 65 million pounds.The real gain for the company, though, Lee Scott stated, “is in creating a new market for LED lighting. Tens of thousands of grocery stores and other retailers will be able to take advantage of this new technology … So multiply the cost savings. Multiply the savings in carbon dioxide emissions. And just think about the impact on our economy and the environment.”40Walmart is not implementing such practices out of the goodness of its heart. When he announced the sustainability initiative, Scott observed that a corporate focus on reducing greenhouse gases as quickly as possible was just a good business strategy, stating, “It will save money for our customers, make us a more efficient business, and help position us to compete effectively in a carbon-constrained world.”41 In the two years after Walmart began its waste-reduction program, cutting unnecessary packaging by just 5 percent saved the company $11 billion globally.42 Walmart’s goal of reducing overall packaging 5 percent by 2013 would be equal to removing 213,000 trucks from the road, saving about 324,000 tons of coal and 77 million gallons of diesel fuel per year.43In October 2008, Walmart—which if it were a country would be the twentieth largest in the world—called its thousand largest Chinese suppliers to a meeting with representatives of the Chinese government, the Carbon Disclosure Project, and others. Walmart executives described the aggressive goals the company had established to build a more environmentally and socially responsible global supply chain. They announced that these requirements would be phased in for all of its suppliers in China in 2009, and expanded to suppliers around the world by 2011.44The criteria required that the top two hundred factories from which Walmart sources its materials achieve a 20 percent improvement in energy efficiency by 2012. By that date, the company stated, it would source 95 percent of its production from factories with the highest ratings in audits for environmental and social practices. It further revealed that Walmart China will design and open a new store prototype using 40 percent less energy.Walmart was one of only two companies in the Dow Jones Industrial Average whose stock price rose in 2008—by 18 percent; its sustainability efforts are credited in part for this performance.45 In 2009, Reuters quoted the company’s new CEO, Mike Duke, as saying that he wants to accelerate Walmart’s sustainability efforts: “I am very serious about it. This is not optional. It’s not something of the past. This is all about the future.”46True to Duke’s word, in July 2009 Walmart rolled out to its several thousand largest suppliers worldwide a comprehensive environmental and social scorecard, covering product packaging and waste reduction to improve product design and delivery.47 Globally, Walmart has sixty thousand to ninety thousand suppliers, all of whom are now on notice that they too will have to comply. In early 2010, Walmart set a goal of cutting 20 million metric tons of greenhouse gas emissions (one and a half times the company’s estimated global carbon footprint growth over the next five years) from its global supply chain by the end of 2015. Duke commented, “Energy efficiency and carbon reduction are central issues in the world today. We’ve been working to make a difference in these areas, both in our own footprint and our supply chain. We know that we have an opportunity to do more and the capacity to do more.”48If you sell to Walmart, you had better get a copy of its scorecard and begin figuring out how to answer its questions. Be warned: The first asks if you are measuring your carbon footprint. The second asks whether you are reporting it to the Carbon Disclosure Project.Walmart is not the only company now requiring its supply chain to document more environmentally responsible practices. Hundreds of major European and American companies are establishing supplier codes of conduct and hiring third-party verifiers to audit their factories to ensure compliance with social and environmental standards. Along with Walmart, such companies recognize that their survival depends on behaving in more sustainable ways, and consequently they are changing how the world does business.Buildings: A Good Place to StartFor Walmart suppliers and everyone else, one of the best places to start saving energy is in buildings. As described in detail in chapter 4, American buildings are responsible for a lot of energy use and greenhouse gas emissions. The architect Ed Mazria, founder of the Architecture 2030 project, states, “Seventy-six percent of the energy produced in this country goes just to operating buildings.”49 For all of this waste, buildings generally have indoor air quality that’s worse than the outdoor air America claims to regulate. Yet it is possible to take virtually any existing building and make it three to four times as efficient as it is now, and new ones ten times as efficient as they would be with conventional construction technology. What is more, efficient buildings cost less to maintain and can even cost less to build.50Green building practices promote greater labor productivity.51 That is one of the reasons that Walmart is going green. About a decade ago the company conducted an inadvertent controlled experiment. Setting out to build a green building, they got halfway through, lost interest, and wound up with a building half green and half not so green. Surprise: the green side posted 40 percent higher retail sales and all the associates wanted to work there.52 Walmart now has an excellent green building department. Pacific Gas and Electric, the largest utility on the North American continent, also found that introducing green design features such as daylight into schools resulted in higher test scores.53These measures represent the greatest return on investment (ROI) hiding in plain sight. For example, changing out inefficient incandescent bulbs with high-quality compact fluorescents delivers greater than 40 percent annual ROI. The return on investment for common stocks might achieve 1.5 percent; by late 2010 you were lucky to get even that on a money market account.54 Even the lowest ROI energy efficiency investments, such as increasing wall or attic insulation, bring twice the return as that on a thirty-year bond.55 Saving energy is simply the best investment you can make. If you have money and you are not investing in increasing the efficiency of your home, your office, or the buildings in your community, you are throwing money down the drain.The Impact on CommunitiesClimate protection investments improve the overall well-being of communities as well. At least a fifth of a typical community’s gross income is spent to buy imported energy. Given that four-fifths of those dollars never return, this is reverse economic development.56This is in part why well over a thousand American mayors pledged their cities to meet the goals set forth in the Kyoto Protocol to reduce their emissions of greenhouse gases by at least 7 percent by 2012.57 Some local governments have already met even more aggressive targets over the same time frame, ranging from a 20 percent reduction by Portland, Oregon, to a 42 percent reduction by Sebastopol, California.58 Communities that are implementing climate protection programs are finding that smart, comprehensive approaches to climate planning make them more competitive and put hundreds of billions of dollars back into the economy from savings.Programs to help buildings use less energy and to encourage the use of efficient cars, appliances, and machines stimulate new manufacturing ventures, increase farm income, and generate increased community income. A local government commissioner from Portland, Oregon, stated, “We’ve found that our climate change policies have been the best economic development strategy we’ve ever had. Not only are we saving billions of dollars on energy, we are also generating hundreds of new sustainable enterprises as a result.”A 2003 study of the impact of energy efficiency and renewables in Oregon found that conserving 1 megawatt (1 million watts) of energy has the following impacts on the state’s economy: • An increase of $2,230,572 in annual economic output• An increase of $684,536 in wage income • An increase of $125,882 in business income• Creation of twenty-two new jobs in OregonThe study found that more than 12 megawatts were saved as a result of Energy Trust of Oregon’s activities to increase energy efficiency in 2002. By 2006 that number grew to 125 megawatts.59Similar results are achieved wherever climate protection programs are implemented. In 2008, over a seven-month period, the city of San Francisco created 180 new jobs by enabling 640 residents and enterprises to install small rooftop solar electric systems that generate 2 megawatts. Workforce trainees filled more than four-fifths of the jobs. The City’s SF Energy Watch helped 1,500 businesses and multifamily properties save more than $5.7 million in energy bills by delivering 6 megawatts of energy efficiency savings.60Add It Up: The Impact on the StatesStudies have assessed the broader economic impact. In Florida, the Republican governor commissioned a Republican task force to look at what it would cost the state to implement measures to cut greenhouse gas emissions. Perhaps he’d been reading the Sports Illustrated swimsuit edition that depicted a Marlins baseball player standing up to his waist in water. Recognizing that under even the most optimistic projections of climate change, much of Florida will flood, Governor Charlie Crist wanted to know what it would cost to prevent this.The answer? Not a dime. Governor Crist was surprised to find that implementing aggressive measures to reduce Florida’s carbon footprint would add $28 billion to the state economy between now and 2025.61In the world’s eighth largest economy, Californians have held their energy consumption to zero growth since 1974 while national per capita energy consumption grew 50 percent. This has enabled the average Californian family to pay about $800 less for energy each year than it would if the state had not pursued energy efficiency.62 In 2004, California ranked twelfth in the nation in energy prices, but only forty-fifth in energy costs per person.63 A 2008 study by the University of California found that California’s programs to reduce energy dependence and increase energy productivity three decades ago directed a greater percentage of its consumption to in-state, employment-intensive goods and services whose supply chains largely reside within California. This created a strong “multiplier” effect on job creation, generating 1.5 million full-time-equivalency jobs with a total payroll of more than $45 billion, and saving California consumers more than $56 billion in energy costs. Going forward, fully implementing California’s Republican-sponsored cap on greenhouse gas emissions (reducing carbon emissions 80 percent by 2050) would increase the gross state product by $76 billion, increase real household incomes by $48 million, and create as many as 403,000 new efficiency and climate action jobs.64It is now well established that protecting the climate creates, rather than costs, jobs. Chapter 4 describes how smart climate protection efforts are restoring Braddock, Pennsylvania, a Rust Belt town outside Pittsburgh whose population went from twenty thousand to two thousand. Its mayor declared, “We’re not going to die, we’re going to go green.”65In Colorado over the last ten years, more new jobs have been created in the clean-tech sector than all other sectors in the state combined.66 In 2008 green industries generated 8.5 million jobs nationwide and more than a trillion dollars in revenues. By 2030, this is predicted to rise to at least 40 million jobs.67In contrast, jobs in the fossil fuel industry have been steadily declining for reasons that “have little to do with environmental regulation.” Mechanization and mergers have meant that although U.S. coal production increased 32 percent between 1980 and 1999, coal-mining employment decreased 66 percent, from 242,000 workers to 83,000. The clean-energy sector, on the other hand, produces ten times more jobs per megawatt of power installed, per unit of energy produced, and per dollar of investment, than the fossil fuel sector. In short, there could be a net gain in employment from shutting down the coal industry and investing instead in climate protection, particularly if governments implement sensible policy interventions aimed at minimizing the impact of the ongoing transition.68More than twenty U.S. states, representing more than two thirds of the United States economy and population, are implementing comprehensive multisector greenhouse gas reduction plans. Such programs will expand employment, income, and investment, and contribute to national economic recovery while generating as many as 2.5 million new jobs and $134 billion in economic activity in the United States. The programs will also deliver such side benefits as energy independence, cleaner air and water, and environmental protection.69No capitalist likes regulation, and you may not, either. But if you are intellectually honest you recognize that the status quo represents massive and uneconomic government intervention in the market in favor of the incumbent fossil-based industries. As described in chapter 10, the fossil fuel industry is the recipient of at least $550 billion a year in direct financial subsidies, primarily to make energy look cheaper than it is. All that climate capitalists ask for is a level playing field. We’d prefer elimination of all subsidies, but absent the establishment of a true free market, let’s at least ensure that the pricing and regulatory signals approximate the outcomes that full cost accounting and honest economics would deliver. In chapter 3 we describe such measures as feed-in tariffs—a policy that requires regional or national electric grid utilities to buy renewable electricity from all eligible participants—now used in Germany to unleash the new energy economy, create jobs, and drive prosperity.Energy policy is not a partisan red or blue issue for Americans. R. James Woolsey, previously head of the CIA, describes how American energy policy forces us to pay for both sides of the war on terror: paying for our guys to fight it and buying oil from the guys who pay our enemies to fight us. Woolsey, most assuredly not a liberal, drives a 100-miles-per-gallon plug-in hybrid car he powers from the solar panels on his roof, with a bumper sticker on the back that says, “Osama Bin Laden hates my car.” He rightly sees energy as a national security issue.This opinion was supported by the study “National Security and the Threat of Climate Change,” in which eleven retired three-star and four-star admirals and generals offer advice, expertise, and perspective on the impact of climate change.70 They found that projected climate change poses a serious threat to America’s national security, acting as a threat multiplier for instability in some of the most volatile regions of the world. The study concluded that climate change will add to tensions even in stable regions of the world. The report made the following recommendations: • Fully integrate the national security consequences of climate change into national security and national defense strategies.• The United States should commit to a stronger national and international role to help stabilize climate change at levels that will avoid significant disruption to global security and stability.• The United States should help less-developed nations build the capacity and resiliency to better manage climate impacts.• The Department of Defense should accelerate the adoption of innovative technologies that deliver improved U.S. combat power through energy efficiency.• Conduct an assessment of the impact on U.S. military installations worldwide of rising sea levels, extreme weather events, and other possible climate change impacts over the next thirty to forty years.New Energy SupplyThe transition away from fossil fuels to the energy systems of the future can take place rapidly. In the next chapter we describe how to take advantage of massive improvements in energy efficiency that are currently available and cost-effective. In chapter 3 we describe how, after we’ve implemented greater energy productivity, renewable forms of energy can deliver all the power that a dynamic industrial society requires, and why the marginal investments in clean energy are better buys than any of the sunset industries like coal or nuclear.In 2008, the wind industry added 27 gigawatts (1 gigawatt = 1 billion watts, or the output of a typical nuclear power station) of new wind-power generating capacity around the world.71 In 2009, the world added another 37 gigawatts of wind-power generating capacity. Had that amount of power instead come from sixty-four new nuclear plants, you might have noticed. In good sites, wind power actually costs less than just running an existing coal plant. Almost any decent site will deliver wind power at far lower cost than building a new coal plant. Which is why utilities have canceled well over one hundred proposed new coal plants across the United States. Some utility commissions have officially ruled that coal plants can no longer compete with the cheapest power, wind.72Solar power is now the world’s fastest-growing energy source, nearing cost-competitiveness with coal, and is already cheaper than nuclear power.73 Southern California’s independent power producers were building a megawatt of solar power per week, prior to the economic collapse. Southern California Edison (SCE) built a 250 megawatt power plant on roofs spread around the region at a price of about $875 million—close to the price of a coal plant recently canceled in Montana projected to cost $800 million.74 SCE’s action leveraged the implementation of another 250 MW of solar brought on by private investors.75 This means that solar electricity, one of the more expensive of the renewable sources of energy, is coming very close to “grid parity”—the point at which alternative means of generating electricity is equal in cost to or cheaper than grid power—beating the cost of producing energy using dirty, dangerous coal.Innovation for SecurityBusiness success and national stature in a time of technological transformation demands innovation. People in the business community talk a lot about innovation, but a great deal more than shareholder equity rests on successful innovation. Since the First Industrial Revolution (ca. 1760)76, there have been at least six waves of innovation, each shifting the technologies underpinning global economic prosperity, political influence, and military ascendancy. In the late 1700s water power drove the mechanization of textiles and iron mongering, and enabled modern commerce to develop in Britain. The second wave of innovation, starting in 1850, also in Britain, introduced steam power, trains, and steel. The British Navy ruled the waves, and the sun never set on the British empire.In the mid-1880s oil was discovered in the United States. By the 1900s, electricity, chemicals, and cars came to dominate, and America came to rule the world, militarily, politically and economically. German and Japanese industrial machines sought to challenge American dominance, but Yankee resources and ingenuity prevailed.By the middle of the twentieth century petrochemicals and the space race, along with electronics, drove American prosperity. The Soviets challenged American economic hegemony, but American innovation and entrepreneurial excellence dominated. The most recent wave of innovation led to the advent of computers, iPods, and digital information.The next wave of innovation is already centering on clean technology, the transition to more sustainable ways of manufacturing products, and on delivering the services that humans desire in ways that will enable the planet to survive. As the early Industrial Revolutions play out and economies move to cloud-computing and biomimicry, older industries are suffering dislocations. There’s nothing new about this. These industries’ choice is the one faced by DuPont when it began shifting from gunpowder to chemicals, back in 1912. Now DuPont is leading the increasing number of companies implementing the array of sustainable technologies that will make up the next wave of innovation.77A 2010 report by Nick Robins for the HSBC bank, “Sizing the Climate Economy,” predicted that by 2020 annual capital investment in the green economy will grow from an annualized $460 billion in 2010 to at least $1.5 trillion.78 Citing mounting pressure on land, water, and energy as a result of growth in emerging economies and world population that will add momentum toward a more efficient “climate economy,” the report states that the green economy would more likely triple to $2.2 trillion, implying global annual market growth of 7 to 11 percent between 2009 and 2020. Renewable energy is the biggest low-carbon sector now, and revenues would grow at 9.4 percent annually to a market size of more than $500 billion by 2020 but still lag transport efficiency at nearly $700 billion in ten years’ time after 18 percent annual growth.79The United States is losing global leadership by lagging in the new green gold rush. The Senate’s failure to pass climate legislation has consigned America to playing catch-up behind China and South Korea, Germany and the United Kingdom—countries that have already required power companies and others to generate more electricity from renewable sources and are investing hundreds of billions of dollars to make themselves green energy superpowers (see chapter 3).80 The China Greentech Initiative reported in September 2009 that China’s market for energy efficiency, renewable energy, and other green technology could become a trillion-dollar market by 2013. The report cites “the fast pace of renewables growth as one example—wind capacity has doubled every year for the last four years to reach 12.2 gigawatts in 2008 and one in 10 households has a solar water heater installed. The government has a target of deriving 20 percent of energy from renewable sources by 2020.”81China broke ground in 2009 on what will be the world’s largest and cheapest wind farm. Delivering 5 gigawatts by 2010, the facility will reach 20 gigawatts by 2020; another six wind farms are planned, each on a similar scale.82 China surpassed the United States as a wind power in 2009, and could well have 30 gigawatts of wind power installed by the end of 2010. The Chinese project investments of $440 to $660 billion in solar and wind power over the next ten years.83Thomas Friedman, the author and New York Times op-ed writer, in article after article warns of the loss of American competitiveness if we let China take over this leadership. In a September 2009 article, he noted that China’s rulers aren’t bothering to waste time arguing about global warming, but focus instead on positioning China to meet the growing demand for clean, renewable power:
China is going clean-tech. The view of China in the U.S. Congress—that China is going to try to leapfrog us by out-polluting us—is out of date. It’s going to try to out-green us. Right now, China is focused on low-cost manufacturing of solar, wind and batteries and building the world’s biggest market for these products.“If they invest in twenty-first-century technologies and we invest in 20th-century technologies, they’ll win,” says David Sandalow, the assistant secretary of energy for policy. “If we both invest in twenty-first-century technologies, challenging each other, we all win.”Unfortunately, we’re still not racing. It’s like Sputnik went up and we think it’s just a shooting star. Instead of a strategic response, too many of our politicians are still trapped in their own dumb-as-we-wanna-be bubble, where we’re always No. 1, and where the U.S. Chamber of Commerce, having sold its soul to the old coal and oil industries, uses its influence to prevent Congress from passing legislation to really spur renewables.84
In a prior article titled “Have a Nice Day,” Friedman lamented that the solar panel fabrication manufacturer Applied Materials, a U.S. company, is opening fourteen new panel manufacturing plants, none in America. Friedman writes, “Let’s see: five are in Germany, four are in China, one is in Spain, one is in India, one is in Italy, one is in Taiwan and one is even in Abu Dhabi. I suggested a new company motto for Applied Materials’ solar business: “Invented here, sold there.” He continues:
O.K., so you don’t believe global warming is real. I do, but let’s assume it’s not. Here is what is indisputable: The world is on track to add another 2.5 billion people by 2050, and many will be aspiring to live Americanlike, high-energy lifestyles. In such a world, renewable energy—where the variable cost of your fuel, sun or wind, is zero—will be in huge demand.China now understands that. It no longer believes it can pollute its way to prosperity because it would choke to death. That is the most important shift in the world in the last 18 months. China has decided that clean-tech is going to be the next great global industry and is now creating a massive domestic market for solar and wind, which will give it a great export platform.In October, Applied will be opening the world’s largest solar research center—in Xian, China. Gotta go where the customers are. So, if you like importing oil from Saudi Arabia, you’re going to love importing solar panels from China.Have a nice day.85
The Business Case: The Integrated Bottom LineThen you get the inevitable question: “Ah, but is there a business case … ?”Yes. In fact, the business case for acting to protect the climate, to make the transition to more sustainable business, is now so robust that you ignore it at your peril.Companies around the world are recognizing that drivers of change such as global warming will require that they shift how they do business. They are also recognizing that companies that behave more responsibly to people and to the planet are a better investment risk and enhance all aspects of shareholder value. Over the past decade, more than twenty studies have shown that companies that focus on and implement sustainability programs achieve greater profitability than their industry’s average. A company’s actions to make it more sustainable also make it less exposed to value erosion, and strengthen every aspect of business value.Shareholder value is enhanced when a company cuts its costs, as DuPont did, maintaining profitability because it committed itself to squeezing out waste. A company that grows its top-line sales through innovation, as STMicroelectronics did, captures superior market advantage. As the Investor Network on Climate Risk showed, responsible management of a company’s carbon footprint enables it to secure better access to capital from the socially responsible investment community, and to better manage its risks. Cutting carbon emissions in buildings enhances labor productivity, increases a company’s ability to attract and retain the best talent, and improves creativity and morale in the workplace.A corporate commitment to use energy more efficiently, to cut its carbon footprint, and to act to protect the climate strengthens every aspect of core business value and shareholder equity. Called the Integrated Bottom Line, this approach shows that companies that implement sustainability programs not only reduce expenses now, but also position themselves for better long-term performance and better manage their supply chains and stakeholders.86 Such businesses enjoy enhanced government relations, reputations, and brand equity. Over time, a commitment to behave more sustainably enhances core business value by delivering sector performance leadership and first-mover advantage. The companies that get it right will be first to the future; we’re talking about the billionaires of tomorrow.87As noted earlier, these conclusions are borne out by a 2007 report from those wild-eyed environmentalists at Goldman Sachs showing that companies that are leaders in environmental, social, and good governance policies have outperformed the MSCI world index of stocks by 25 percent since 2005.88 Seventy-two percent of the companies on the list outperformed their industry peers, were financially healthier, and achieved enduring value.89 From 2006 through 2007 companies on the Dow Jones Sustainability World Index performed ten points above the S&P 500.90 A study by the Economist Intelligence Unit confirmed these findings and found, further, that the worst-performing companies in the economy were most likely to have nobody in charge of sustainability.In 2009, the management consultancy A. T. Kearney released the findings of their report “Green Winners,” which compared the economic performance of companies with a commitment to sustainability to companies in the same industry without such a commitment.91 The report tracked the stock price performance over six months prior to November 2008 of ninety-nine firms on the Dow Jones Sustainability Index and the Goldman Sachs list of green companies. The results showed that in sixteen out of the eighteen industries evaluated, businesses deemed “sustainability focused” outperformed industry peers over three- and six-month periods and were “well protected from value erosion.” In the study period of three months the differential between the companies with and without a commitment to sustainability was 10 percent, and over six months the differential was 15 percent. “This performance differential translates to an average of $650 million in market capitalization per company,” the report stated.92A 2009 study of European companies by Atos Consulting put the point bluntly: “Companies with more mature sustainability programs enjoy higher profit.”93The Bottom LineCompanies will implement more sustainable processes and procedures or they will lose competitiveness in a world that can no longer tolerate unsustainable behavior. A 2009 article in Harvard Business Review concluded, “Sustainability isn’t the burden on bottom lines that many executives believe it to be. In fact, becoming environment-friendly can lower your costs and increase your revenues. That’s why sustainability should be a touchstone for all innovation. In the future, only companies that make sustainability a goal will achieve competitive advantage. That means rethinking business models as well as products, technologies and processes.”94Acting to protect the climate will unleash a new energy economy and create the greatest prosperity in history.If we fail to act, it will be the greatest market failure ever in history.95Business-as-usual is changing. The economic collapse of 2008–2009 had many causes, but at root it stemmed from the fundamental unsustainability not only of the global financial system but of the way business is conducted around the globe. If the massive stimulus packages rushed to the market prove “successful,” and the global economy returns to the boom days of the early twenty-first century, the challenge of climate change will inexorably force the system into the next collapse. Overcoming the financial crisis, avoiding the next collapse, and creating a society in which all people can prosper will require rethinking how business is conducted. Businesses and governments can either drive change in ways that allow companies and economies to flourish, or they will be forced to respond to a cascade of crises and to hope for the best.The global collapse of 2008–2009 showed the folly of that approach. The challenges facing modern industry go far beyond the usual task of ensuring sufficient cash flow to stay in business. They pose systemic challenges that will fundamentally alter how everything is made and delivered. Nothing will go untouched by this transformation.This book describes how businesses are prospering as they make the transition to genuine sustainability.Will you join them?Copyright © 2011 by L. Hunter Lovins and Boyd Cohen