NEWS: The Economist's Report on Business and Climate Change

In Early June The Economist featured a cover story entitled, “Cleaning Up: A 15-page report on how business is tackling climate change. The report included several articles on how big companies are going green and why. The report discussed that the driving force toward green energy is not just moral pressure, but there is growing economic pressure as well. In spite of the current interest in greenhouse-gas emissions, emissions are continuing to rise:

“If greenhouse-gas emissions are to be stabilized, then the carbon price or the support mechanism for clean energy, or both, will have to rise or be adopted worldwide, or both. And if that happens, the returns on clean-energy investment will increase even further and the companies that have already invested in such businesses will have a head start over those that have not.”

Therefore, customers, businesses and governments are realizing solving the climate change problem will provide new markets, technologies, business, and money to be made.

The Economist report featured:

This article explains how a new business is forming out of the carbon market. More and more companies involved in power generation that once believed climate changed was the work of fiction, are coming out of the woodwork to create their own emission control promises and encouraging government regulation. Since states like California have created regulations or are working on creating them, companies are encouraging a federal government policy that is universal within all the 50 states. The companies however are not just interested in a cleaner environment or a universal policy to make paperwork easier, there profit involved:

“There is money in it, (federal regulation) too. If the American government adopts a cap-and-trade system, it will hand out permits to pollute. They are, in effect, cash. According to Paul Bledsoe of the National Commission on Energy Policy, those allowances are likely to be worth in the region of $40 billion. Companies therefore want to be involved in designing those regulations.”

A Swedish power utility company, Vattenfall, is working on quantifying what ways of cutting carbon are cheaper. Insulation improvement, Fuel-efficient vehicles, Lighting system, Water heating, and sugar cane biofules, can both cut emissions and save money for people and business. However, the immediate savings are too small and the effort involved talks to much work, and electricity bills are too “boring” to think about. Also, people responsible for these changes may not have the knowledge or capital to make the initial investment to change.

Worldwide, 13% of the world’s energy needs are supplied by renewable resources. The three biggest sources are currently geothermal, hydro-electric power, and biomass. However, these sources aren’t perfect. Geothermal energy is limited by geology. Hydro-electric power is limited by building dams, use of large amounts of land, and government participation in large-scale production. Biomass is limited by the expense of long-distance shipping and old technology. Wind and Solar energy become next best expandable renewable resources. Countries that currently engage in large scale use of solar power, include Germany, Denmark, and China. Advanced technology and economies of scale have both dramatically reduced the price of solar cell technology, thus making solar power a more viable option for consumers. As with all things in life, minor setbacks do occur. One such example was a recent shortage of silicon, which inflated the price of solar cells. The silver lining in that cloud is that it forces companies to invest in thin-cell technology, which uses much less silincon, which, overall, is better for the environment. Energy tariffs have also made renewable energy more complex than need be. Nevertheless, big energy players have begun to invest in renewable energies. Such companies include GE and BP. Another factor in the future of renewables is politics. Luckily, wind and solar energy is less politically-risky, and can thus be shielded from partisan strategy.

The carbon market is a place where traders can buy and sell non-carbon in the form of carbon credits. The purposes of the market are to establish a price for carbon and to allow companies to cheaply buy carbon credits. Carbon credits primarily come from two sources. The first is from corporate allowances. The second is certified clean mechanisms in developing countries. Such an example would include capturing methane gas from pig stool to create electricity. In fact, last year alone, developing countries accounted for 562 metric tons of CO2 [$5.33 billion] traded. China is an up and coming polluter, and appropriately, last year, purchased over $4billion worth of carbon credits. Europe is still having a tough time in cutting emissions, partly due to the continued use of coal.

Nuclear energy in wealthy nations is responsible for a large chunk of energy: 18% in Britain, 19% in the U.S., and a whopping 80% in France. However, the nuclear society in America has been buzzing with activity of recent, for three reasons. First, the nuclear approval process was reformed in the 1990’s. Second, global warming has increased the need to find energies that emit less carbon dioxide. Third, the Energy Policy of 2005, which provided the nuclear industry with a tax credit, provided for $1.25 billion for innovative technologies, as well as another $2billion in insurance for regulatory issues. The application deadline is the end of next year, and so far 22 companies has applied to build 32 new nuclear plants. There are three problems that still remain. The first is waste removal. There is no long-term waste solution, but nuclear experts agree that waste can be safely stored in dry-storage casks surrounded by inert gases for about 100 years until a solution is found. Second, terrorism is still a worry. While plants are build strong enough to survive most routine attacks, plants can never be completely ready for innovate attacks. Third, costs for nuclear energy are higher than that of coal, by about 2KWH. However, new technologies may help to reduce the costs, and new plants with new technology appear to be the only viable way to gauge real-world cost savings.

Statoil, a Norwegian oil company, collects oil, but doesn’t contribute to atmospheric global warming. This is because the company pumps the carbon dioxide back into the ground. This innovation, called Carbon Capturing and Storing, or CCS, is considered a quick fix for global warming. While standard pulverized coal can be burned more cleanly at higher temperatures, energy demands are too burdensome for this technology alone, which is why CCS is getting a closer look. CCS is currently being done in three places: Norway, Canada, and Algeria. According to the International Energy Agency, about 15 new CCS power plants have been approved for production. The abundant use of coal is a good reason to further investigate the use of CCS.

Greenhouse emission cuts and fuel standards are beginning to toughen up. The EU has enacted mandatory fuel efficiency laws, and now more governments are following suit. In January 2007, California announced its goal to reduce carbon emissions from fuels by 10% by 2020. Hybrid cars, while a current quick fix, are not the answer, as their carbon savings will soon be offset by the overall increase in global car ownership. Some real changes have to take place. One change is ethanol, which gives off CO2 , but, in theory, soaks it up through the plant’s photosynthesizing phase. There are three problems with ethanol. First, the market is currently limited. Most American cars can take E10 fuel [10% ethanol] but only about 6 million cars are currently “flex-fuel” ready, and can support E85 [85% ethanol]. Second, ethanol is expensive. While competitive with gasoline in price at the pump, subsidies cost the American taxpayer billions, and import tariffs keep out cheaper ethanol, such as that from Brazil which is made of sugar cane. Third, ethanol isn’t very green. Some experts believe that ethanol, due to its energy use for growth, releases more emissions than saves. Celluosic ethanol, or ethanol made from anything with cellulose in it, may be a better, greener ethanol. Other ideas that are still alive are electric and hydrogen cars. However, hydrogen is currently very expensive to produce, costs about the same as gas at the pump, and there are only 3 fueling stations in the world: one in Iceland, one in Washington, DC, and one opening in California. Hydrogen fueled cars cost about $1million to produce. Other ideas include cars ran on Lithium-Ion batteries, similar to those in laptop computers, only much bigger.

While green thinking has greatly increased over the past few years, more so in the last year alone, some worry that being green could be a trend that could die off. One risk could be the loss of greenness as fashionable. For example, it may only be a matter of time until Hollywood mega stars move one to the next big thing, and leave their hybrid cars behind. The second risk is oil prices. While they have been high for some time, if the price per barrel were to come crashing down, so would the hopes of expanding alternative energies. Third, politics can interfere. Companies are banking of alternative energy tax breaks and incentives to help. The best way to ensure that the green revolution becomes a permanent fixture and not a trend is to vote in officials who will continue to implement green policy, and to buy from companies who are committed to green ideologies. Carbon prices must be set, and the richest and developed countries must take the plunge to permanency before developing countries can follow suit.

Venture capitalists of the internet boom of the 90’s are now trying their hands at alternative energies. At the other end of the spectrum are established companies looking for new markets in new energies. An example is GE and its Ecomagination campaign. While the venture capitalists claim that alternative energy is geared to small business, pointing out the number of small wind and solar powered farms, the alternative energy market is still dominated by incumbent companies who have the capital to move mountains and market new ideas.

SSC can help your organization understand what these new developments means for your organization and can assist your business in navigating the carbon market.