My friend Jonathan Koomey‘s invited perspective article, “Moving beyond benefit-cost analysis of climate change”, was just posted by the open access on-line journal Environmental Research Letters. Here’s the abstract and the introduction.
The conventional benefit–cost approach to understanding the climate problem has serious limitations. Fortunately, an alternative way of thinking about the problem has arisen in recent decades, based on analyzing the cost effectiveness of achieving a normatively defined warming target. This approach yields important insights, showing that delaying action is costly, required emissions reductions are rapid, and most proved reserves of fossil fuels will need to stay in the ground if we’re to stabilize the climate. I call this method ‘working forward toward a goal’, and it is one that will see wide application in the years ahead.
Michael Totten‘s comment:
Outstanding article, Jonathan Koomey. I particularly liked this passage, “Delaying action eats up the emissions budget, locks in emissions-intensive infrastructure, and makes the required reductions much more costly and difficult later. The IEA, using the ‘working forward toward a goal’ approach, estimated the costs of delay at about $0.5 trillion US for every year we put off serious climate action .
Conversely, early action through technology deployment brings the costs of technologies down through learning-by-doing, which is one manifestation of increasing returns to scale . Because of these and other factors, our choices now affect our options later, which is known in the technical literature as path dependence [19, 20]. Luderer et al highlight the importance of such effects to the economic outcome on climate mitigation, but most conventional models of the economy ignore them [19, 21], with the likely effect of overestimating the costs of reducing emissions.”
It’s so clear. Who wants to waste half trillion a year?
Which means the only obstacles are (1) those that profit from the delay, and (2) those that are disinformed by those that profit from the delay.
There are two big conferences I’ve been tracking this week. They’re worlds apart, and not just geographically.
The first: the UN Climate Talks in Warsaw, where the global community, as we call it, continues to struggle to find a deal to prevent the gathering storm of climate change. It’s not looking good.“The talks,” as Reuters reports, “have stuttered over several issues, particularly whether rich nations should pay developing countries for losses suffered due to the effects of climate change, and the lack of ambitious pledges to cut emissions.” In fact 800 people from Greenpeace and WWF & other groups walked out of the talks—the first mass this has happened—to protest lack of progress towards a global deal.
Meanwhile in Philadelphia, some ten thousand people have gathered for Greenbuild, focusing on the $100b green building industry—an industry reportedly doubling in size every three years. Hillary Clinton keynoted last night (and Bon Jovi performed!), but what particularly stands out for me is the growing movement toward “net zero”—not just less damage, but no damage.Integral Group, a Bay Area design and engineering firm, has, for example, designed 41 net zero energy buildings at last count—buildings that use no more energy than they generate. But what’s notable is this: they didn’t cost a dime more to build, and in some cases less that “normal” or even energy efficient buildings! What’s the ROI of lower operating costs gained through less capital investment? It’s a deal so good that you can’t do the math. In fact it’s an offer you can’t refuse.
It’s not a niche phenomenon—net zero will be
required the goal for all new homes in California in 2020 (and for all new commercial (and 50% of existing commercial) structures by 2030).
And it’s not just buildings. Companies as diverse as BT, Dell and Thrive Natural Care are talking about delivering “net good.” Dell has set its target at 10x—delivering ten times more energy savings and climate benefit from their products as it takes to produce and operate them—and while it’s not completely clear how that will be calculated, it’s a commitment worth watching.
At one level, the difference between the climate talks in Warsaw and Greenbuild in Philadelphia is the difference between seeing a vast problem or seeing a vast opportunity. It’s both of course—I don’t mean to downplay the seriousness of the climate tumult ahead. But in my view a primary focus on the opportunity—what Jigar Shah calls
building creating climate wealth—a trillion dollars worth of it—is what will let loose the creativity to build a new economy—one that nurtures nature, that makes investors very, very happy, and that uplifts humanity—all seven-going-on-ten billion of us.
I’ve received a number of responses to yesterdays’s post, 5 things I’ve learned in 8 weeks of sustainability conferences, ranging from incredulous to disagreeing, about some challenging statements I made comparing fossil fuel profits with subsidies, and clean energy investment with fossil and nuclear investment.
I’ll post additional clarifications, references (and if necessary corrections) shortly—probably tomorrow.
Thanks for your patience—and your interest!
For most of the past eight weeks, I’ve been on the road at sustainability conferences*: New Metrics, Sustainability Applied, a private company briefing, Cities Alive, Net Impact, the SRI Conference, CleanTech Future. Keynoting some, moderating some, occasionally a civilian. (I missed SXSWeco, alas, and Bioneers and the San Francisco Green Festival for the first time in maybe forever.) I’m tired but enriched—fired up, actually—and want to share a few impressions with you.
We’re headed for a world of hurt
We don’t know whether we face step function changes in climate – such as suddenly losing the Greenland ice shelf – and we may not know until – and if – it happens. But we do seem to be witnessing a serious acceleration of extreme climate events. A single billion-dollar storm event per year in the 1980s, five per year in the 1990s and oughts, and more than eight per year so far this decade—and now the Philippines super storm with landfall winds 50% more intense than Katrina’s. The deniers and their bought-and-paid-for cronies and legislators can dissemble all they want; insurers are taking this seriously—as are coastal cities around the world, who see the massive call on infrastructure investment coming.
We’ve turned the corner
And yet, the shift toward a renewable—or perhaps even regenerative—economy is accelerating faster than many of us expected. Solar is at grid parity right about now, and investment in renewables exceeded investment in fossil and nuclear energy combined last year. Companies are not only realizing substantial cost savings from eco-efficiency – $450 million over 10 years for Interface Flor, $395 million in two years for Unilever— but also substantial top line revenue gains from sustainability focused product innovation – half a billion or so for Levis, $130 billion for General Electric. (See Creating A Regenerative Economy, the recent piece in Fast Company by John Fullerton and Hunter Lovins.)
Defective thinking + massive economic distortions hold us back
Yet people—and companies—who should know better continue to assume, based on habit more than data, that greener will cost them more money, or make them less money; that you have to choose between making money and making sense. You don’t. (See above.) The opportunity would be even more dramatic were it not masked by the massive economic distortions of both direct subsidies transfer payments and tax loopholes, and the indirect subsidies of un-monetized externalities. When the subsidies to the coal industry exceed the market cap of industry, that’s not a business; that’s a dead man walking. When the subsidies to the oil industry are three times greater than the profits of the oil industry, that’s not a business; that’s transfer payments from taxpayers to shareholders, and one day taxpayers might just say “enough!” When half of Walmart’s employees require public assistance to compensate for insufficient wages, that’s not a business; it’s a scandal. (Here’s a new metric for you: what’s the ratio of your company’s profit to the direct and indirect subsidies it receives?)
Disruptive innovation is good news or bad, depending on where you sit, but it’s comin’ ta getcha!
We are in an era of entire industries being turned on their heads – the time when business model innovation may be even more significant than technical innovation. Think AirBnB, which put as many beds under management in seven years as the leading hotel chains did in 70. Think ZipCar, which claims a 10x improvement in capital efficiency – and a profound challenge to the automobile industry. Think 3-D printing. The list goes on. Here’s the deal: you have two choices: blow up your own business model and work like hell to make sure that you’re the one to replace it with something better and more profitable; or dig in your heels and hope to hell that somebody else doesn’t blow your business model out from under you (though they probably will). There is no third choice. (And, by the way, money isn’t what motivates your people.)
Software, finance & cities are key—but there’s still plenty to do in the world of stuff
Software will eat the world, Marc Andreesen promised us, and we see its transformative impact in Sungevity‘s “virtual solar design,” Verizon’s smartgrid enabled thermal storage, WeatherBug‘s big data for home-specific thermodynamic profiling and Climate Corporation‘s hyper-granular crop insurance. FinTech may have the world for dessert, as “socially responsible investment” grows up from the negative screens that got it started; performance parity with less diversification has most asset managers’ attention, but the real game is outperformance. Massive outperformance. GE’s venture into the industrial Internet, for example—where big data meets meets big things that spin—promises to deliver more to the bottom line from a 1% improvement in jet engine efficiency than the total current profit of the airline industry.
There’s more to talk about—engagement, infrastructure, China, more—but that’s enough for today. I’ll have more to add in coming weeks. Meanwhile, my questions for you—whether as a company executive, a government official, an investor or a citizen:
My suggestion: Talk with me. That’s what we’re here for.
(*You can find my tweetbooks for several of these conferences here.)
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