Sustainablog

This blog will cover some news items related to Sustainability: Corporate Social Responsibility, Stewardship, Environmental management, etc.

1.2.07

Climate report alarming, wake-up call to govts: What happens if temperature rises by... 3 degrees C (likeliest scenario): 1 - 4 billion more people suffer water shortages... 5 degrees C: disappearance of large glaciers in Himalayas; Sea level rise threatens Florida, New York, London, and Tokyo


Climate report alarming, wake-up call to govts

Reuters

Posted online: Friday, February 02, 2007 at 0000 hrs IST

PARIS, FEBRUARY 1
The UN climate panel is set to issue its strongest warning yet on Friday that human activities are causing a damaging global warming that is likely to raise global temperatures by up to 4.5 degree Celsius by the end of this century and cause more heat waves, droughts and rising seas in the immediate future.

The group, the most authoritative on climate change with 2,500 scientists from 130 countries, is also due to say that oceans will keep rising for more than 1,000 years even if governments stabilise greenhouse gas emissions this century.

Scientists and government officials in the Intergovernmental Panel on Climate Change (IPCC) have been meeting in Paris since Monday to review the report, including a 15-page summary for policymakers.

"The talks are moving forward," one IPCC official said. The IPCC says it will publish the results on Friday.

The report, increasing certainty that humans are to blame for warming, may put pressure on governments and companies to do more to curb a build-up of greenhouse gases mainly from burning fossil fuels in power plants, factories and cars.

"It is very likely that (human) greenhouse gases caused most of the observed increase in globally averaged temperatures since the mid-20th century," according to a final draft.

"Very likely" means a probability of at least 90 per cent — up from a judgment of "likely", or a 66 per cent probability, in the previous 2001 report. The report is the first of four this year by the panel that will outline threats of warming.

The Paris study, looking at the science of global warming, will also project a "best estimate" that temperatures will rise by 3 C by 2100 over pre-industrial levels, the biggest change in a century for thousands of years. It says bigger gains, of up to 6.3 C in one model, cannot be ruled out but do not fit well with other data. The world is now about 5 C warmer than during the last Ice Age.

The draft projects that Arctic ice will shrink, and perhaps disappear in summers by 2100, while heat waves and downpours would get more frequent. The numbers of tropical hurricanes and typhoons might decrease but the storms would become stronger. The Gulf Stream bringing warm waters to the North Atlantic could slow, although a shutdown is highly unlikely, it says.

And sea levels are likely to rise by between 28 and 43 cm this century, a lower range than forecast in 2001. Rising seas threaten low-lying Pacific islands and low-lying coastal nations from Bangladesh to the Netherlands. "Governments planning coastal defences have to live with large uncertainties for now, and quite some time in future," said Stefan Rahmstorf of Germany's Potsdam Institute for Climate Impact Research.

UN officials hope the IPCC report will spur stalled talks on expanding the fight against global warming. Thirty-five industrial nations aim to cut emissions of greenhouse gases to five percent below 1990 levels by 2008-12 under the UN's Kyoto Protocol and want outsiders such as the United States, China and India to do more. Last week US President George W. Bush said climate change was a "serious challenge". But he has stopped short of capping emissions despite pressure from Democrats who control both houses of Congress — arguing Kyoto would damage the economy.

Heat's on

Human factor

Human greenhouse gas increase may be behind rise in temperatures in last 50 years

Warming of the climate system is unequivocal, evident in rising average air and ocean temperatures, melting of snow and ice, rising sea levels

Greenhouse gases would have caused more warming in recent times, partly offset by volcano dust and pollution

Projections

Temperatures are likely to rise by 2-4.5 degree Celsius above pre-industrial levels. The "best estimate" for the rise is about 3C

It is "very likely" that extremes such as heat waves and heavy rains will become more frequent.

Antarctica is likely to stay too cold for widesurface melting and is expected to gain in mass due to more snow

What happens if temperature rises by...

1 degree C

Shrinking glaciers threaten water for 50 million people

Modest increases in cereal yields in temperate regions

At least 300,000 people each year die from malaria, malnutrition and other climate-related diseases

Reduction in winter mortality in higher latitudes

80 per cent bleaching of coral reefs, e.g. Great Barrier Reef

2 degrees C

5 - 10% decline in crop yield in tropical Africa

40 - 60 million more people exposed to malaria in Africa

Up to 10 million more people affected by coastal flooding

15 - 40% of species face extinction (one estimate)

High risk of extinction of Arctic species, e.g. polar bear

Potential for Greenland ice sheet to start to melt irreversibly, committing world to 7- metre sea-level rise

3 degrees C

In Southern Europe, serious droughts once every 10 years

1 - 4 billion more people suffer water shortages

Some 150 - 550 additional millions at risk of hunger

1 - 3 million more people die from malnutrition

Onset of Amazon forest collapse

Rising risk of collapse of West Antarctic ice sheet

Atlantic Conveyor of warm water

Rising risk of abrupt changes to the monsoon

4 degrees C

Agricultural yields decline by 15 - 35 per cent in Africa

Up to 80 million more people exposed to malaria in Africa

Loss of around half Arctic tundra

5 degrees C

Possible disappearance of large glaciers in Himalayas, affecting one quarter of China's population, many in India

Continued increase in ocean acidity seriously disrupting marine ecosystems and possibly fish stocks

Sea level rise threatens small islands, coastal areas such as Florida and major cities such as New York, London, and Tokyo

Brussels introduces plans for greener car fuels: This would cut emissions by 500 million tonnes of carbon dioxide by 2020, equivalent to the combined emissions of Spain and Sweden today


Brussels introduces plans for greener car fuels

AFP, 31 January 2007 - The European Commission on Wednesday announced plans to introduce bloc-wide rules for cleaner vehicle fuels but the main debate over strict new laws on emission levels remained unresolved.

Under the plans put forward by the EU's executive arm, automakers from 2011 will have to reduce emissions by one percent a year "from well to wheel" from 2010 levels.

That means greenhouse gas emissions caused in the fuel "life-cycle" from its extraction from the ground to its use in the car must be progressively decreased.

This would cut emissions by 500 million tonnes of carbon dioxide by 2020, equivalent to the combined emissions of Spain and Sweden today, the Commission stated.

Diesel fuel for cars will also have to be sulphur-free throughout the European Union from 2009.

The permitted sulphur content in gasoil used by non-road machinery and inland waterway barges would also be substantially cut Also, to enable a higher volume of biofuels to be used in petrol, a separate petrol blend would be established including up to 10 percent of ethanol, under the new rules, which must be passed by the European Parliament and the 27 member states before going into effect.

The last part of the plan would be accompanied by measure to ensure this does not lead to higher emissions of volatile organic compounds.

The Commission delayed for another week an announcement on the hotly debated issue of laws to reduce average carbon dioxide emissions from new cars to 120 grams per kilometre, a move strongly opposed by Germany.

EU Environment Commissioner Stavros Dimas said the announced measures would "further underpin Europe's shift towards the low-carbon economy that is essential if we are to prevent climate change."

He added: "This is a concrete test of our political commitment to leadership on climate policy and our capacity to translate political priorities inot concrete measures."

Dimas spokeswoman Barbara Helfferich told a press conference that the new measures had been rolled out ahead of an agreement on new car CO2 emissions, adding only that "details of the CO2 strategy are still under dicussion."

German Chancellor Angela Merkel on Tuesday waded into an escalating battle over EU plans to enforce big cuts in carbon dioxide emissions from cars by voicing opposition to a wholesale solution.

"The government will do everything it can to reach a sector-wide reduction," Merkel told a meeting of industry leaders here.

It was "regrettable" that European car makers would not meet the targets they had set themselves, she said.

But she added that it would be wrong for a wholesale solution to be imposed as a result.

Media reports Wednesday said that the Commission was mulling whether to increase the maximum proposed CO2 levels to 130 grams per kilometre travelled by 2012, rather than 120 g/km as it has set out. The higher level would still be lower that Japan's target of 138 g/km by 2015.

Sustainable supermarkets – An emissions trading scheme for tomatoes? product “life-cycle” data, which looks at the energy consumption of products passing along the entire value chain from farm to fork, is hard to find.


Sustainable supermarkets – An emissions trading scheme for tomatoes?

Ethical Corporation, 30 January 2007 - As the UK government starts to act on climate change, supermarkets could play a leading role in weaning the country off carbon.

Since the esteemed economist Sir Nicholas Stern called climate change "the greatest and widest-ranging market failure ever seen", carbon dioxide, and how to cut it, has become the hot topic in UK public policy.

The 600-page Stern review, which was published in October at the behest of UK chancellor Gordon Brown, confirmed what environmentalists have been saying for decades: that current levels of carbon consumption in the UK and around the world are dangerously unsustainable.

Stern estimates that 1% of UK gross domestic product must be spent on tackling climate change, leading to a 25% cut in greenhouse gas emissions by 2050. If measures are not taken before then and temperatures increase by 5ºC, Stern warns, rising sea levels could put London underwater.

Faced with doomsday scenarios like this, even politicians cannot fail to act. A climate change bill, proposing a 60% cut in greenhouse gas emissions by 2050, formed the centrepiece of the Queen's Speech outlining the UK government's plans at the state opening of parliament in November.

For these ambitious reduction targets to be met, even less energy-intensive industries will have to address their carbon footprint. Now supermarkets, along with banks, hotel chains and universities, are the subject of a proposed emissions trading scheme under the government's climate change bill.

Supermarkets are an obvious next candidate for carbon-cutting measures. The food and drinks industry may only account for 14% of all UK carbon dioxide emissions, but when Tesco alone accounts for one pound in every seven spent on the UK high street, there is tremendous potential for supermarkets to facilitate more sustainable methods of food production and consumption.

Eco-aware

There are signs that supermarkets are beginning to recognise their responsibility to take a lead on carbon cutting. Representatives of all the large retailers gathered for the Sustainable Food Industry Summit, held in London in November, to discuss how they could reduce the industry's energy consumption.

This meeting followed several high-profile moves by supermarkets to demonstrate their green credentials. A £100 million environment fund is central to Tesco's ten-point "community plan", released in May, just after all supermarkets were referred to the UK Competition Commission for investigation into alleged anti-competitive practices. The Tesco money will fund eye-catching green measures, such as powering stores with wind turbines.

Rival chain Asda, whose chief executive, Andy Bond, convened the sustainability summit, is putting its energy into reducing food packaging and waste. The chain has pledged to stop sending any waste produced at its stores to landfill by 2010. It has also promised to cut the volume of all packaging on its products by at least 10% by the end of 2007.

Blake Lee-Harwood, campaigns director at environmental campaign group Greenpeace, who addressed the London summit, is encouraged by these developments. He said: "Clearly there is a new wave of sustainability consciousness sweeping through the retail sector in the UK … We don't see it as greenwash."

Common measures


Despite these encouraging signs, it seems unlikely such disparate moves on the part of supermarkets can deliver carbon cuts on the radical scale Stern says is needed. That would require supermarkets to collaborate, working with the government to establish a way to calculate their carbon footprints and agree upon policy measures to reduce them.

At the moment some supermarkets speak of emissions per store, others emissions by square foot. At Marks & Spencer, widely regarded as a sustainability leader in the sector, carbon dioxide emissions are down 30% per square foot from three years ago – but for many environmentalists, the fact the chain is growing renders that figure almost meaningless.

Measuring the energy consumption of supermarket operations would be relatively easy but of very limited use. In-store use of refrigerators, lights and air-conditioning systems accounts for just a fraction of the carbon use that supermarkets could be held responsible for.

A more accurate assessment of supermarkets' environmental impact would have to consider the carbon footprint of food products on their shelves. But so-called product "life-cycle" data, which looks at the energy consumption of products passing along the entire value chain from farm to fork, is hard to find.

Sources at the UK Department of the Environment, Food and Rural Affairs say that supermarkets could better assist the government in life-cycle analysis to calculate the environmental impacts of the products they sell.

Defra welcomes supermarkets' talk of engagement, but it remains to be seen how far the retail giants will co-operate in building an evidence base that could, potentially, lead to green levies on more energy-intensive foodstuffs.

Debunking myths


The fact the evidence for environmental impacts of food products is complex and incomplete makes it hard to gauge how green supermarkets really are. It is even harder for consumers to make truly sustainable food choices.

For example, tomatoes grown under glass in the UK will consume more energy in their life cycle than tomatoes grown and flown in from Spain, says Defra.

Rowland Hill, corporate responsibility manager at M&S, uses New Zealand apples to illustrate the point. Apples transported from halfway round the world by boat are responsible for less carbon dioxide on the sea-leg of their journey than on the road trip from a supermarket distribution centre to a store, Hill says. (On top of this, of course, there are also road miles at either end of the shipping route.)

These examples could complicate the prevailing assumption, encouraged by green campaigners, that local sourcing is fundamental to a sustainable food system. For Hill and M&S, local sourcing is not the solution to climate change. He says: "In carbon terms the argument is very weak. In fact, there is no argument."

This does not detract from the campaigners' case that for truly sustainable food production and consumption, environmental impacts must be factored into the cost of goods on supermarket shelves.

Tim Lang, professor of food policy at London's City University, says: "You can't get mangoes in Lancashire, but if you want mangoes, pay the full environmental price for them."

To achieve this would meet the Stern report's key recommendation: that the cost of carbon should be internalised across the economy. An emissions trading scheme for supermarkets would be the first step. Hill says M&S is preparing for such a scheme to come into force by 2011.

Green visions


But campaigners are more ambitious in their hopes for the industry. For Lee-Harwood, supermarkets' rightful role is no less than to use their influential position to shape consumer consciousness in a new, low-carbon economy.

He says customers should be made aware of the carbon impact of their food. Just as we can see how much fat or sugar is in a product, so we should know the amount of carbon it is responsible for.

Through offering incentives, via reward schemes, for buying food products that produce less carbon, supermarkets could create a "grey economy" in carbon, which would become an "alternative" or "shadow currency", Lee-Harwood says, as people would adjust their behaviour accordingly.

This could reduce our energy consumption in ways government could only dream of. Lee-Harwood argues: "That is an essential precursor for creating the political space for a carbon-rationing regime. At the moment, although this kite has been flown by [UK environment minister] David Miliband and others, everyone knows it would be politically impossible to introduce carbon-rationing into Britain."

Given their difficulty in reaching agreement on health labelling for food, the idea of supermarkets spearheading the UK's transition to a low-carbon future may be far-fetched. No doubt retailers have the power to change consumer behaviour. But whether a highly competitive sector, traditionally resistant to government intervention, can be persuaded to work together to reduce our dependency on carbon remains to be seen.

Food miles: room for reductions

  • Deliveries to supermarkets and their distribution centres make up 25% of road miles travelled by heavy goods vehicles in the UK every year.
  • On average these vehicles run at only half capacity.
Carbon calculations

Prince Charles's Duchy Originals food range is leading the way on informing consumers of their products' carbon footprint. Labels will show how much climate-changing gases are released in the production of 200 items, ranging from sausages to shampoo. A spokesman for the prince says the aim is for "people to know the cost of their food in greenhouse gas terms as well as in terms of pounds and pence".

Report paints rosy picture for renewables: Renewable energy can deliver half of the world's primary energy needs by 2050, according to a report produced by the European Renewable Energy Council and Greenpeace.


Report paints rosy picture for renewables

EurActiv.com, 28 January 2007 - Renewable energy can deliver half of the world's primary energy needs by 2050, according to a report produced by the European Renewable Energy Council and Greenpeace.

Background

Renewable energy coming from sun, wind and water has, in theory, the potential to provide our economies with more than enough clean energy. Every day more energy from sunlight reaches the earth than the world economy needs. And although only a small proportion of these renewable sources can be technically accessed, some scientists believe that this proportion is large enough to provide six times more power than the world currently requires.

Nevertheless, renewable energy only accounts for 13.1% of the global primary energy demand (figures IEA 2004). In the EU, the share of renewables is around 8%.

But rising oil prices, concerns about long-term demand-supply issues for non-renewable fossil fuels and the burning challenge of global warming have renewed politicians' interest in solar, wind, biomass and hydro power.

In its "energy-climate change package" of 10 January 2007, the Commission put forward a general target of 20% use of renewables by 2020 but, much to the disappointment of the renewable industries sector, did not set any sectorial targets.

Issues

Industry group EREC (European Renewable Energy Council) and Greenpeace presented their joint report "Energy (R)evolution: a sustainable world energy outlook" on 25 January 2007. The report's publication co-incides with the EU's first Sustainable Energy Week held from 29 January to 2 February.

The report's Energy [R]evolution scenario contrasts with the International Energy Agency's (IEA) World Energy Outlook 2004 and its "business as usual scenario (extrapolated to 2050):

The main messages of the EREC-Greenpeace report are:

  • Huge energy efficiency measures in the transport and housing sector can reduce global primary energy demand from the current 435.000 PJ/a (Peta Joules per year) to 422.000 PJ/a by 2050. The IEA World Outlook 2004 foresees 810.000 PJ/a [1 petajoule= 10³ TJ (Tera) = 106 GJ (Giga) = 277.8 GWh (Giga Watt hour)]
  • half of this reduced primary energy demand can be covered by renewables;
  • nuclear can be phased out completely and fossil fuels will only be used in the transport sector (the study is less optimistic than some governments on biofuels);
  • by 2050, 70% of electricity will be produced from renewable resources; in the heat sector, the contribution of renewables will be 65%;
  • this energy [r]evolution will lead to huge reductions in greenhouse-gas emissions : from 23,000 million tonnes in 2003 to 11,500 million tonnes in 2050; annual per-capita emissions will go down from 4.0 t to 1.3 t, and;
  • contrary to the IEA reference scenario, energy costs can be stabilised under the EREC/Greenpeace scenario; in the IEA report these costs will quadruple.
In order to achieve this scenario, the report recommends the following political measures :
  • Phase out all subsidies for fossil fuels and nuclear and internalise external costs;
  • establish worldwide legally binding targets for renewables;
  • provide stable returns for investors;
  • guarantee priority access to the grid for renewable power generators, and;
  • apply strict efficiency standards for all energy-consuming appliances, buildings and vehicles.
Positions

In the World Energy Outlook 2006, the International Energy Agency is much less optimistic about the future of renewables. In its "Alternative Policy Scenario" (which starts from the policies governments are currently implementing and developing), the share of renewables in global energy consumption will remain largely unchanged at 14% in 2030. By the same year, renewables will provide 26% of electricity production (currently 18%) according to the IEA. In another IEA scenario (BAPS - Beyond the Alternative Policy Scenario - based on more ambitious governmental measures), the share of renewables in electricity production would rise to 32% by 2030.

The biggest challenges for renewables are still competitive pricing and intermittency (see Wikipedia's Intermittent power sources). But renewables also pose some environmental and public-acceptance challenges, which are not addressed in the EREC/Greenpeace report. When asked by EurActiv, Greenpeace Sven Teske admitted that a chapter on the environmental limits of renewables had been foreseen but that for reasons of the length of the report, this section was not included.

For an overview of the limits of renewables, read the article by Professor David Elliott from the Open University on the website "Before the wells run dry. Ireland's transition to renewable energy".

Latest & next steps

A special three-day European Renewable Energy Policy Conference takes place in the context of the EU's Sustainable Energy week.

Links

EU official documents

International organzations Governments EU actors positions

Drinking recycled sewage way ahead for parched Australia: Howard


Drinking recycled sewage way ahead for parched Australia: Howard

AFP, 29 January 2007 - Australia's prime minister on Monday hailed a move to force the citizens of a drought-parched region to drink recycled sewage as the way forward for the rest of the world's driest inhabited continent.

John Howard praised Queensland Premier Peter Beattie, who on Sunday announced that residents in the state's tinder-dry southeast would be drinking recycled waste water as early as next year, whether they liked it or not.

"I am very strongly in favour of recycling, and Mr. Beattie is right and I agree with him completely," Howard told commercial radio. "I've advocated recycling for a long time."

Beattie said record-low inflows to dams had left his government with no alternative but to dump plans for a public referendum on the issue intended for March.

"The reality is at the moment we have no choice, we have to provide people with water," he said.

"It's not like we are part of a freak show -- the rest of the world is doing this," he said, referring to residents in Singapore, London, Washington and southern California, whom he said drank recycled water.

Much of Australia is enduring what has been described as the worst drought in a century and most major cities already have water restrictions in place.

Beattie's move was greeted with resignation by anti-recycling campaigner Clive Berghofer, the former mayor of the drought-stricken southeastern town of Toowoomba, whose residents rejected recycled water in a referendum last July.

"Politicians are ducking for cover because they have neglected (water) infrastructure for years and are now panicking," he said.

Berghofer said the move would ruin the city's clean and green image, and the use of recycled water in agriculture would damage the region's economy.

"A lot of our food is exported, and the Japanese especially are particular about these things. People don't realise the implications of doing these things," he told AFP.

Berghofer also questioned the safety of drinking treated sewage, saying there were many chemicals that could still not could not be detected.

Although state governments in Victoria, New South Wales, South Australia and Western Australia have vowed not to follow Queensland, Beattie predicted all governments would eventually have to introduce the same measures.

"I think in the end, because of the drought, all of Australia is going to end up drinking recycled purified water," Beattie told the Australian Broadcasting Corporation.

Arctic melting could usher in exploration boom


Arctic melting could usher in exploration boom

Greenwire, 26 January 2007 - Melting ice in the Arctic Ocean could spell a new era of oil and natural gas exploration in the region, according to experts meeting this week in Norway to discuss Arctic challenges.

The Arctic region contains a quarter of the world's remaining oil reserves, experts estimate. It also contains massive natural gas fields in the Barents Sea, including Russia's huge Shtokman field. "By 2040 or 2050, the Arctic Ocean will be navigable and that will mean significant developments very soon," said ArcticNet research group head Martin Fortier.

But European Environment Agency head Jacqueline McGlade warned that the region's opening could lead to another rush like the Klondike gold rush, which "could potentially destabilize" the area and its 10 million indigenous inhabitants. "It is clear that dealing with the range of problems and demands in a piecemeal fashion is likely to lead to conflicts and a loss of peace and security," she said (Francis Kohn, Agence France-Presse, Jan. 26).

Solar Industry Needs to Take A Leaf Out of Google's approach, in which widespread adoption occurs far faster when barriers to adoption are removed.


[Thanks to Pete for this one]

Solar Industry Needs to Take A Leaf Out of Google's Book, Study Says
'Short Fuse' Approach to Solar Technology Adoption Promises Most Success

BOSTON, Feb. 1 /PRNewswire/ -- The solar power industry could significantly accelerate mainstream adoption of photovoltaic (PV) systems if it followed Google's example, says a new study by the Topline Strategy Group, a leading technology consulting and market intelligence firm. Like Google, Salesforce.com, and other successful companies, the solar power industry should focus on removing -- not simply overcoming -- barriers that currently prevent individuals and businesses from purchasing PV systems.

According to the study, the solar power industry faces numerous challenges in overcoming business and consumer resistance to purchasing PV systems. A lack of confidence in the technology, high initial investment, a lack of standards and best practices, concern about impact on property values, and a lack of an effective sales channel currently pose obstacles that the industry has not yet been able to surmount.

"The solar industry can look to companies like Google for learning how to accelerate technology adoption," said Jon Klein, founder and general partner of Topline Strategy. "By removing objections to the technology and providing customers with PV packages that are less costly, easy to install and support, and more accessible through accepted consumer channels, like warehouse home improvement retailers, the industry can help consumers gain confidence in PV solutions." Klein also notes that the industry must establish standards and work to simplify permitting processes nationwide.

This viewpoint is outlined in more detail in "What the Solar Power Industry Can Learn from Google and Salesforce.com," an analysis prepared by the Topline Strategy Group and Sunlight Electric. Instead of taking a "Long Fuse" approach of slowly building credibility with early adopters and then bridging products and marketing efforts to mainstream customers, the analysis suggests that the solar industry take a "Short Fuse" approach, similar to Google, in which widespread adoption occurs far faster when barriers to adoption are removed.

"There are seven steps that the industry can take to facilitate adoption," said Klein. "They range from offering preconfigured PV system packages to offering manufacturer financing and transferable warranties. The Solar Energy Industry Association projects growth from 340 megawatts of capacity to 200,000 megawatts by 2030 -- a viable market opportunity. Those industry players that can successfully accelerate adoption stand to win substantial market share."

About The Topline Strategy Group

The Topline Strategy Group is a consulting and market intelligence firm dedicated to helping technology companies accelerate sales. Topline consultants possess strategy expertise gained at top strategy consulting firms and operating experience acquired through launching and growing numerous successful technology companies. The Topline Strategy Group employs proven methodologies to help companies grow at each stage of their lifecycles -- from launching successful new products and accelerating sales of current products, to building comprehensive corporate growth plans. Topline clients have identified and captured tens of millions of dollars in additional revenue and generated hundreds of millions of dollars in market capitalization.


Scientists hammer out key climate report due Friday: Leaked drafts of the assessment predict that Earth's surface temperature will rise by 4.5 C (8.1 F) or even higher


Scientists hammer out key climate report due Friday

AFP, 1 February 2007 - The world's top climate experts struggled against the clock on Thursday to hammer out a consensus report on global warming that is already radiating political shockwaves.

More than 500 scientists huddled at the closed-door meeting of the Intergovernmental Panel on Climate Change (IPCC) in Paris, poring over the first review of the scientific evidence for global warming in six years ahead of the report's release Friday.

"It is going very slowly, things have to speed up a bit -- there are lots of difficult issues to resolve today," said an environmental scientist who has participated in all the IPCC climate assessments since 1999.

The Eiffel Tower nearby was to extinguish its lights for five minutes at 7:55 p.m. (1855 GMT) as part of a campaign to raise awareness about energy efficiency and fossil-fuel pollution.

Compared with previous IPCC gatherings, the source said, "there is a strikingly low degree of conflict and a high degree of agreement by governments" on the core conclusions that the planet is warming and mankind is overwhelmingly responsible for it.

"None of the 'usual suspects' -- the United States, the oil-producing countries and China -- have attempted to obstruct the discussions" or "corrupt the science in the report," said another participant.

But the line-by-line vetting was slowed by the sheer task of making the document intelligible for policymakers without sacrificing scientific accuracy.

There was also sharp debate, both sources said, about what should be included, or not, in the phonebook-sized report's all-important summary.

"The two main sticking points have been how to describe the temperature projections and the rise in sea levels," said the environmental scientist.

Leaked drafts of the assessment predict that Earth's surface temperature will rise by 4.5 C (8.1 F) or even higher if carbon dioxide levels in the atmosphere increase by half compared with today's concentrations. The figures are hedged with qualifications and different scenarios, though.

Government representatives complained that this yardstick was too fuzzy for the general public and decision-makers, which means the final document will simply project the expected temperature rise by 2100.

A forecast in the draft that sea levels will rise by 28 to 43 centimeters (11.2 to 17.2 inches) have also been contested as too conservative by some scientists, both sources said, as it does not factor in recently-observed melting of ice in Greenland and Antarctica.

"The paleontologists point out that during the last intergalacial period, sea levels rose at one meter (3.25 feet) or higher per century," a source said.

As the week-long meeting got underway, global warming initiatives announced around the world underscored the extent to which climate change is fast becoming a top priority for policy makers.

The United Nations Environment Programme (UNEP) joined with the UN Framework Convention on Climate Change (UNFCCC) -- the offshoot of the 1992 Rio Summit -- to call on new Secretary General Ban Ki-Moon to call a special summit on global warming.

US lawmakers called Tuesday for an end to American complacency over global warming as the new Democratic-controlled Congress weighed measures to reduce greenhouse gases.

Two more volumes of the IPCCC assessment are due out in April and early May. They will assess the environmental and social impacts of these changes and ways of mitigating climate shift.

Failing Report Card: Disclosure of emissions, risks and opportunities is only one step toward thoughtful management of climate variables, but it is the essential first step—the ignition switch in the engine of climate mitigation and adaptation


Failing Report Card
Submitted by margo on Tue, 2007-01-30 14:35. Environment

Survey finds largest U.S. companies doing "poor job" disclosing climate change risks.

By Michael Connor

Arguing that the nation's publicly-held companies "should elevate climate change as a corporate priority and communicate openly with investors about their strategies and responses," the environmental network group Ceres and the socially responsible mutual fund company Calvert released a report harshly critical of climate change disclosure at most top-tier companies.

"Disclosure practices among the nation's largest 500 companies are severely lacking. Less than half of the S&P 500 companies responded, and the response received fell far short of the standards set" by the Global Framework for Climate Risk Exposure, the report said. "Nearly a third of the responders, in fact, declined to share their answers with all investors, designating their responses as 'confidential'".

The report said that while industries like oil and gas—with significant greenhouse gas emissions and energy-intensive operations—face obvious risks from regulation, "lower emitting" industry sectors, such as retailers, banks and telecommunication companies "should also provide shareholders with more analysis and disclosure" on risks and strategies for managing or mitigating those risks.

Citing damage caused by hurricanes in 2005, for example, the report noted that in addition to $45 billion of insured losses from hurricane Katrina alone, retailers, telecom companies, utilities and banks also suffered major "financial hits." According to the report, "JP Morgan Chase reported a $400 million special provision related to hurricanes in third quarter 2005. BellSouth suffered more than $100 million of losses from hurricane-related damage. Coca-Cola, Target, McDonalds and Carnival were also hit with losses. All told, nearly half of the largest 100 companies in the S&P 500 reported measurable impacts for Katrina and Rita-related losses in 2005."

The report provides industry-by-industry analysis and commentary on particular corporate disclosure practices. Citigroup, for example, is praised for "taking steps to analyze and manage the implications of climate change, and the company's response serves as a preliminary benchmark for others in the financial services sector."

Most insurers were criticized for disclosure shortcomings. Allstate, for example, did not respond to the survey questionnaire despite having reported $3.68 billion in Katrina-related losses in the third quarter of 2005, the report said. "Other insurance companies, such as MetLife, and other retailers, such as CVS, felt the financial impacts from climate change yet did not respond to the questionnaire."

U.S. companies lag well behind their foreign competitors in climate risk disclosure, according to the report, with only 47 percent of the S&P 500 companies responding to the survey questionnaire, as opposed to 72 percent among the FTSE 500

Mindy Lubber, President of Ceres, and Julie Fox Gorte, Vice President and Chief Social Investment Strategist for Calvert, point to increased pressure on companies for disclosure by the Investor Network on Climate Risk, which is composed of major institutional investors: "While 'Wall Street time' is usually measured month-to-month and quarter-to-quarter," they say, "many of the world's largest investors are looking at both the short- and long-term financial implications from climate change."

The report concludes: "Disclosure of emissions, risks and opportunities is only one step toward thoughtful management of climate variables, but it is the essential first step—the ignition switch in the engine of climate mitigation and adaptation."

Click here for a full copy of the report or visit  www.ceres.org or www.calvert.com .

Asda to remove packaging from fruit and veg: this return to traditional values could have a huge impact upon the amount of packaging thrown away every day. We believe our customers would prefer to shop in this traditional way if it means reducing waste and protecting our environment


Asda to remove packaging from fruit and veg
By Martin Hickman, Consumer Affairs Correspondent
Published: 01 February 2007

Fresh fruit and vegetables are being stripped of their plastic covers as part of a project that could transform the way goods are sold by one of Britain's biggest supermarket groups.

In an experiment next week, Asda is to revisit the days of the 1950s greengrocer by removing all packaging from most fresh produce at two stores in north-west England. If buyers are not put off, the policy will be applied to the chain's 316 stores in the UK.

The development follows The Independent's campaign against waste, which urges retailers and the public to reduce packaging, which squanders resources and swells landfill sites.

Asda, like its supermarket peers, is reinventing itself as a green business in the hunt for more upmarket customers. As part of its new environmental credentials - and in common with other signatories to the Courtauld Commitment to reduce waste - the store has pledged to reduce packaging by 10 per cent within 18 months. But the company has set itself an even more ambitious target of reducing all packaging by 25 per cent this year.

According to the store, about 60 per cent of fresh fruit and vegetables currently sold by supermarket chains is pre-packed.

The stores involved in the trial will not be named to protect the experiment. Packaging will be removed from 60 lines of fresh produce, including carrots, broad beans and courgettes. Only produce deemed "fragile", such as raspberries, will remain packed to prevent damage.

A company spokesman said: "The move heralds a return to old-fashioned retailing methods - the first step taken towards the past by any retailer for almost 60 years."

A spokeswoman added it could change the way people shopped. She said: "We believe this return to traditional values could have a huge impact upon the amount of packaging thrown away every day. We believe our customers would prefer to shop in this traditional way if it means reducing waste and protecting our environment."

When love comes triple wrapped

Susan Swift e-mailed The Independent to complain about Sainsbury's "Love Cakes" - chocolate cupcakes decorated with a pink heart to celebrate Valentine's Day. "Each cake is in a paper cake case; six cakes are then placed in a hard plastic tray with a hard plastic lid, the tray is then further sealed in a clear plastic wrapper. The whole is then wrapped in a violent pink cardboard outer sleeve," she said.

Sainsbury's responded: "The Love Cakes are baked in the paper cases and are placed in the plastic tray to protect them in transit from the supplier to the customer. The outer packaging contains ingredient and dietary information. We are aware that there is more work to do.

"The six Love cakes product in question may seem over-packaged and undoubtedly has room for improvement...

"The pack needs the overwrap film to provide it with a shelf life. The sleeve is an example, which displays our... recycling messages whereby we will show customers the recycling information."

The cakes were delicious though...

Corporate Survey Fatigue? If you are IBM or Citigroup, your finance, investor relations, HR , CSR, citizenship, communications and marketing functions are asked to complete 300 to 1, 000 surveys, questionnaires or regulatory reports every year. Most of the time, big companies comply...


CRO POV: Corporate Survey Fatigue?
Submitted by margo on Tue, 2007-01-30 14:30. POV

By Jay Whitehead

If you are IBM or Citigroup or any of the world's 50 most highly capitalized companies, your finance, investor relations, human resources, corporate social responsibility, citizenship, communications and marketing functions are asked to complete 300 to 1,000 surveys, questionnaires or regulatory reports every year. Most of the time, big companies comply with these requests; sometimes enthusiastically, sometimes not.

Anyone who has ever completed a big-time consumer or business survey knows what a burden these things can be. Back in the mid-1980s when I was at PC Magazine, I can remember completing one that took me an entire weekend.

We at The CRO don't help this survey scope-creep at all. After all, we encourage people to respond to KLD Analytics' questionnaires. The result of the KLD survey is the 100 Best Corporate Citizens list, which appears in our Jan/Feb 2007 CRO Magazine. And we will have several other survey-based features throughout the year as well. We are part of the problem, and only making it worse.

New requirements, such as the Global Reporting Initiative, are attempting to simplify the plight of the corporate reporting process by being one single repository for standard results. Call it the financial reporting equivalent of a nutrition label.

While the GRI has been around for a few years, it seems to have picked up most of its traction in Europe and the developing world. North American companies are coming on board slowly, hindered mostly by the fatigue of all the competing surveys and reports.

Another company, One Report, has created a nice tool that allows companies to fill in one report (hence the product's clever name) that answers many surveys' needs. I have spoken with two customers of One Report, and they are enthusiastic about the product's streamlining impact. Both these companies are very large, which leads me to wonder how many mid-cap companies have a problem that is solved by One Report.

Jay Falk, the visionary entrepreneur who started One Report, says that financial reporting is only one part of the equation—and the smallest part. There will be, he says, a massive increase in need for reporting on supply chain issues. Supply chain reporting may be the next big thing, and next big source of corporate survey fatigue.

For our part, we'll continue to be a source of survey stress. After all, that's the media's job. But the good news is that by providing stakeholders more comparative information, we help companies use CR to differentiate themselves, sell product, raise capital and recruit talent. So maybe the added stress will be worth it.

What is the business of business? By building social issues into strategy, big companies can recast the debate about their role in society.


What is the business of business?

By building social issues into strategy, big companies can recast the debate about their role in society.

Ian Davis

2005 Number 3


The great, long-running debate about business's role in society is currently caught between two contrasting, and tired, ideological positions. On one side of the current debate are those who argue that, to borrow Milton Friedman's phrase, "the business of business is business." This belief, most established in Anglo-Saxon economies, implies that social issues are peripheral to the challenges of corporate management. The sole legitimate purpose of business is to create shareholder value. On the other side are the proponents of corporate social responsibility, a rapidly growing, rather fuzzy movement encompassing companies that claim that they already practice the principles of CSR and skeptical advocacy groups arguing that they must go further in mitigating their social impact. As other regions of the world—parts of continental Europe, for example—move toward the Anglo-Saxon shareholder value model, the debate between these points of view has increasingly taken on global significance.

Both perspectives obscure, in different ways, the significance of social issues to business success. They also unhelpfully caricature the contribution of business to social welfare. It is time for CEOs of big companies to recast this debate and recapture the intellectual and moral high ground from their critics.

Large companies must build social issues into strategy in a way that reflects their actual business importance. Such companies need to articulate their social contribution and to define their ultimate purpose in a way that is more subtle than "the business of business is business" and less defensive than most current CSR approaches. It can help to view the relationship between big business and society as an implicit social contract—Rousseau adapted to the corporate world, you might say. This contract has obligations, opportunities, and advantages for both sides.

To explain the basis for such an approach, it may help first to pinpoint the limitations of the two current ideological poles. Start with "the business of business is business." The issue here is not primarily legal: in many countries, such as Germany, companies have a legal obligation to stakeholders, and even in the United States the legal primacy of shareholders is open to very broad interpretation.

The problem with the "business of business is business" mind-set is rather that it can obscure two important realities. The first is that social issues are not so much tangential to the business of business as fundamental to it. From a defensive point of view, companies that ignore public sentiment make themselves vulnerable to attack. Social pressures can also serve as early indicators of factors essential to corporate profitability: for example, the regulations and public-policy environment in which companies must operate, the appetite of consumers for certain goods above others, and the motivation of employees—and their willingness to be hired in the first place.

Companies that treat social issues as either irritating distractions or simply unjustified vehicles for attacks on business are turning a blind eye to impending forces that have the potential to alter the strategic future in fundamental ways. Although the effects of social pressures on these forces may not be immediate, that is not a reason for companies to delay preparing for or tackling them. Even from a strict shareholder perspective, most stock market value—typically, more than 80 percent in US and Western European public markets—depends on expectations of corporate cash flows beyond the next three years.

Examples abound of the long-term business impact of social issues. That impact is growing fast. In the pharmaceutical sector, the past decade's storm of social pressures—stemming from issues such as public perceptions of excessive prices charged for HIV/AIDS drugs in developing countries—are now translating into a general (and sometimes seemingly indiscriminate) toughening of the regulatory environment. In the food and restaurant sector, meanwhile, the long-escalating debate about obesity is now resulting in calls for further controls on the marketing of unhealthy foods. In the case of big financial institutions, concerns about conflicts of interest and the mis-selling of products have recently led to changes in core business practices and industry structure. For some big retailers, public and planning resistance to new stores is constraining growth opportunities. And all this is to say nothing of the way social and political pressures have reshaped and redefined the tobacco and the oil and mining industries, among others, over the decades.

In all such cases, billions of dollars of shareholder value have been put at stake as a result of social issues that ultimately feed into the fundamental drivers of corporate performance. In many instances, a "business of business is business" outlook has blinded companies to outcomes, or to shifts in the implicit social contract, that often could have been anticipated.

Just as important, these outcomes have not just posed risks to companies but also generated value creation opportunities: in the case of the pharmaceutical sector, for example, the growing market for generic drugs; in the case of fast-food restaurants, providing healthier meals; and in the case of the energy industry, meeting fast-growing demand (as well as regulatory pressure) for cleaner fuels such as natural gas. Social pressures often indicate the existence of unmet social needs or consumer preferences. Businesses can gain advantage by spotting and supplying these before their competitors do.

Paradoxically, therefore, the language of shareholder value may in this respect hinder companies from maximizing their shareholder value. Practiced as an unthinking mantra, "the business of business is business" can lead managers to focus excessively on improving the short-term performance of their businesses, thus neglecting important longer-term opportunities and issues, including societal pressures, the trust of customers, and investments in innovation and other growth prospects.

The second point that the "business of business is business" outlook obscures for many companies—the need to address questions about their ethics and legitimacy—is related to the first. For reasons of integrity and enlightened self-interest, big companies need to tackle such issues, with both words and actions. It is neither sufficient nor wise to say that it is for governments to set laws and for companies simply to operate within them. Nor is it enough simply to point out that many criticisms of businesses are unmerited or that those throwing the mud ought also to examine their own practices and social responsibility. Irrespective of whether the criticisms are valid, their cumulative effect can shape the strategic context for companies. It is imperative that businesses seek to lead rather than merely react to these debates.

Moreover, in certain parts of the world—particularly some poor developing countries—the rule of law and basic public services are notable by their absence. This reality can render the "business of business is business" mind-set positively unhelpful as a guide for corporate action. If companies operating in such an environment focus too narrowly on ill-defined local legislation or shy away from broad debates about their alleged behavior, they are likely to face mounting criticism over their activities as well as a greater risk of becoming embroiled in local political tensions.

Is CSR the answer? If only it were. The point is not to criticize the many laudable CSR initiatives undertaken by individual companies or to dispute the obvious need for businesses (as for any other social entity) to act responsibly. It is rather to examine the broad prescriptions proposed by groups and activists involved with CSR. These prescriptions commonly include stakeholder dialogue, social and environmental reports, and corporate policies on ethical issues. This approach is too limited, too defensive, and too disconnected from corporate strategy.

The defensive posture of CSR springs from its origins. Its popularity as a set of corporate tactics was driven, in large part, by a series of anticorporate campaigns in the late 1990s. These campaigns were in turn given impetus by the antiglobalization protests mounted around the same time. Since then, companies have been drawn to CSR by nice-sounding if vague notions such as the "triple bottom line": the idea that companies can simultaneously serve social and environmental goals as well as earn profits. Companies have seen CSR as a way to avoid nongovernmental-organization (NGO) and reputational flak and to mitigate the rougher edges and consequences of capitalism.

Developing countries must rethink how to attract and regulate investment. See "The truth about foreign direct investment in emerging markets."

This defensiveness starts the argument on the wrong foot—certainly as far as business leaders should be concerned. Big business provides huge and critical contributions to modern society. These are insufficiently articulated, acknowledged, or understood. Among them are productivity gains, innovation and research, employment, large-scale investments, human-capital development, and organization. All of them are, and will be, essential for future national and global economic welfare. Big business also supplies investment vehicles that are likely to be central to the provision of pensions in the aging countries of the Organisation for Economic Co-operation and Development (OECD). In developing countries, meanwhile, the entry of multinational companies through foreign direct investment has often contributed critical capital, technology, skills, and other poverty-reducing economic spillovers. It is no coincidence that developing countries place such emphasis on attracting big business and the investment it can bring to their economies.

CSR is limited as an agenda for corporate action because it fails to capture the potential importance of social issues for corporate strategy. Admittedly, companies undertaking a stakeholder dialogue with NGOs will be more aware, in advance, of potential issues. But tracking NGO opinion is only part of the process of understanding the range of social pressures that can ultimately affect core business drivers such as regulations and consumption patterns.

An obvious next step for companies, having understood the possible evolution of these broad social pressures, is to map long-term options and responses. This process clearly needs to be rooted in the development of strategy. Yet typical CSR initiatives—a new ethical policy here, for example, or a glossy sustainability report there—are often tangential to it. It is perfectly possible for a company to follow many prescriptions of CSR and still be caught short by seismic shifts in the socially driven business environment. One of the compounding problems is the fact that many companies have chosen to root their CSR functions too narrowly, within their public- or corporate-affairs departments. Although such departments play an important tactical role, they are often geared toward rebutting criticism and tend to operate at a distance from strategic decision making within the company.

A contract has two sides, and business must acknowledge that in return for the ability to function, it is subject to rules and constraints

In the limitations of both CSR and of the "business of business is business" thinking lie the outlines of a new approach—as relevant for Chinese, German, and Indian companies as for US and British ones. Three main strands stand out. The first is a helpfully simple prescription: businesses should introduce explicit processes to make sure that social issues and emerging social forces are discussed at the highest levels as part of overall strategic planning. This point means that executives must educate and engage their boards of directors. It also means that they need to develop broad metrics or summaries that usefully describe the relevant issues, in much the same way that most companies analyze customer trends today. The risk that stakeholders—including governments, consumer groups, lawyers, and the media—will mobilize around particular issues can be roughly estimated by studying the known agendas and interests of these parties. For example, the likelihood that the obesity debate would rebound on food companies was partly predictable from the growing expenditures of governments on obesity-related health problems, the inevitable media focus on the issue, plus the interest of some lawyers in finding fresh corporate targets for litigation. By the time businesses seriously engaged with the question, they were in a defensive posture, merely struggling to catch up with the public debate. In the future, companies will need to be much better at understanding and anticipating such issues.

Both the second and third strands of the new approach reflect the idea that there is an implicit contract between big business and society or indeed between whole economic sectors and society—the contract that is the subject of this article. Detractors have often successfully portrayed the contract as a one-way bargain that benefits business at society's expense. The reality is much more complex. The activities undertaken by business have clearly brought social benefits as well as costs. Similarly, however, there are two sides to a contract, and business must acknowledge that in return for the ability to function, it is subject to rules and constraints. At times, the contract can come under obvious strain. The recent backlash against big business in the United States can be seen as society seeking to shift the terms of the contract as a result of popular perceptions that business has abused its power. Similarly, in Germany at present, business is struggling to defend itself against charges that its contract with society is fundamentally unbalanced.

The second strand requires companies not just to understand their individual contracts but also to manage those contracts actively. To do so, companies can choose from a range of potential tactics, such as more transparent reporting, shifts in R&D or asset reorganization to capture expected future opportunities or to shed perceived liabilities, changes in approaches to regulation, and, at an industry level, the development and deployment of voluntary standards of behavior.

Some companies and sectors are already experimenting with such approaches. Nonetheless, there is scope for much more activity, provided it is aligned with corporate strategic goals. Reshaping conduct on an industry-wide and increasingly global basis may be particularly important, given that the perceived misdeeds of one company can rebound on its sector as a whole.

An important point to remember is that companies, depending on their circumstances, will have quite different tactical responses, so off-the-shelf or simply nice-sounding solutions may not always be appropriate. Transparency offers a good example. It is easy, but wrong, to say that there can never be enough of it. What might be good for a pharmaceutical company trying to restore the consumers' trust could be damaging for a hedge fund manager. A voluntary code of practice for a retailer naturally would be very different from that of a copper-mining company.

This observation leads me to the third strand of the new approach for business leaders: they need to shape the debate on social issues much more consciously by establishing ever higher (but appropriate) standards of integrity and transparency within their own companies and by becoming much more actively involved in external debates (such as those in the media) on issues that shape the social context of business.

A starting point may be for CEOs to articulate publicly the purpose of business in terms less dry than shareholder value, although that should continue to be seen as the critical measure of business success. However, it may be more accurate, more motivating—and indeed more beneficial to shareholder value over the long term—to describe the ultimate purpose of business as the efficient provision of goods and services that society wants.

This is a hugely valuable, even noble, purpose. It is the basis of the contract between business and society and the basis of most people's real interactions with business. CEOs could point out that profits are not an end in themselves but a signal from society that a company is succeeding in its mission of providing something people want—and doing so in a way that uses resources efficiently relative to other possible uses. From this perspective, the creation of shareholder value or profits is the measure, and the reward, of success in delivering to society the goods and services we desire, which is the more fundamental business objective. The measures and rewards reflect the predominant values of the relevant society.

CEOs could point out that profits are not an end in themselves but a signal from society that a company is providing things people want

By moving away from a rigid focus on the term shareholder value, big business can also make clear to broad audiences that it understands the trade-offs inherent in its social contract. The debate between business and society is essentially one about how to manage (and reach agreement on) those trade-offs. What might this point mean specifically? There is no shortage of big social issues today that directly affect many big businesses and require new debate. These issues include ensuring that aid organizations and trade regimes successfully promote the development of Africa and other poor regions, whose economic liftoff would present a major potential boon to global markets as well as to international security; promoting a more sophisticated and sensitive approach, by both companies and governments, to balancing the societal risks and rewards from new technologies; spearheading dialogue on the health care and pension challenges in many developed countries; and supporting efforts to resolve regional conflicts.

Obviously, the relevant issue must be matched to the specific business. Some companies and business organizations have taken strong public stances on these and similar issues. But in general, high-level, concerted corporate activism is more notable by its absence. Business leaders shouldn't fear taking a more forward role advocating the idea of a contract between business and society. Public receptiveness to active business leadership on issues such as these may be a lot greater than some might be inclined to think. Despite the poor image and bad press of big business in recent times, polls suggest that people retain a belief in its ability to provide a positive contribution to society.

More than two centuries ago, Rousseau's social contract helped to seed the idea among political leaders that they must serve the public good, lest their own legitimacy be threatened. The CEOs of today's big corporations should take the opportunity to restate and reinforce their own social contracts in order to help secure, for the long term, the invested billions of their shareholders.

About the Authors

Ian Davis is the worldwide managing director of McKinsey & Company. This article was originally published as "The biggest contract" in the May 26, 2005, issue of the Economist. Copyright © The Economist Newspaper Limited, London, 2005. All rights reserved. Reprinted by permission.

CEOs as public leaders: A McKinsey Survey -- US business executives say they should play a much greater role in shaping debate about sociopolitical issues and leading efforts to effect change


CEOs as public leaders: A McKinsey Survey

US business executives say they should play a much greater role in shaping debate about sociopolitical issues and leading efforts to effect change.

Web exclusive, January 2007



Table of Contents

Almost half of US executives believe they and their peers should play a leadership role in publicly shaping debate and in efforts to address sociopolitical issues such as education, health care, and foreign policy, according to the latest McKinsey Quarterly survey.1 Yet only one-seventh of survey respondents consider themselves to be playing that role now.

The few who do play a leading role are likely to be board members or CEOs and often represent privately held companies. Most of them say they are motivated primarily by personal reasons, and they usually act as private citizens. Moreover, they say a comprehensive understanding of public issues and a strong network of peers with a similar interest make it easier for them to play a leadership role. The primary barrier to being even more involved is a lack of time.

These results expand on the findings of an earlier McKinsey Quarterly survey in which business leaders around the world recognized the importance of a corporation's contract with society and the imperative for them to engage in discussions of crucial sociopolitical issues.2 These opinions are not surprising, considering that the social and political forces that today can define and swiftly remake a company's reputation and regulatory environment can dramatically alter an industry's strategic landscape and market opportunities over the long term. That survey (in which three out of four respondents said the CEO or chair should take the lead when companies try to manage sociopolitical issues) suggested a prominent role for top executives in articulating and helping to resolve the complex trade-offs inherent in big public-policy issues such as health care, education, poverty, and climate change.

Notes

1 The McKinsey Quarterly conducted the survey in December 2006 and received responses from 721 US executives, of which 400 hold C-level positions. Three out of four of these C-level executives are board members, CEOs, or both.

2 In that survey, 84 percent of executives embraced the idea that the role of corporations in society goes far beyond simply meeting obligations to shareholders. Moreover, they said traditional tactics, such as lobbying and public relations, are not the most effective ones. See "The McKinsey Global Survey of Business Executives: Business and Society," The McKinsey Quarterly, Web exclusive, January 2006.



Table of Contents

A leadership role: Perceptions, practices, and principles

Business executives address public issues in a variety of ways. They may act through their companies' activities or as private citizens. Some participate through membership in a business organization involved with public issues, and others may take on a leadership role. Our survey defined a leadership role as publicly striving to shape the debate about one or more public issues and leading efforts to address those issues. Differences emerged when executives were asked what role, if any, they believe their peers play in addressing public issues; what role they themselves play, and what role they think executives should play.

Only 6 percent of respondents say most executives play a leadership role, while 35 percent say most executives play no role at all. The majority, 59 percent, estimate that most executives play "some" role, but not one that matches the criteria for leadership (Exhibit 1). Asked what role they themselves play in addressing public issues, executives sketch a more animated picture: 14 percent (100 respondents) say they assume a leadership role, while 27 percent say they play no role at all. When asked about the role they think most US business executives should play, respondents express a wish for dramatically greater involvement. Forty-four percent say most executives should take on a leadership role, while only 6 percent say most should play no role (Exhibit 2). Indeed, almost half of those who play some role and one out of five who play no role support the principle that most executives should play a leadership role.

 

Of the 100 respondents who say they are playing a leadership role in addressing public issues, 56 are board members, and 14 of these are also CEOs. An additional 5 are CEOs but not members of a board.

Of the remaining group of leaders, 15 are C-level executives, and 24 hold less-prominent positions. Roughly 1 in 5 of all the CEOs and board members who participated in the survey say they are taking a leadership role. Interestingly, 64 percent of those taking a prominent role work at privately held companies, the overwhelming majority of them with annual revenues below $1 billion. Thirty-six percent serve at public companies, almost all of them with revenues above $1 billion.3

Notes

3 Respondents from public and privately held companies were equally represented in the survey, but among board members and CEOs, there was a significantly larger share representing privately held companies.



Table of Contents

Personal and business reasons

What motivates executives who take a leading role in tackling sociopolitical issues?4 Again, the survey reveals a disparity between perception and practice. Among executives who say they don't play a leadership role, roughly two out of three perceive that those who do are driven primarily by business reasons and are usually acting as representatives of their companies. However, when we pose the same question to executives who say they are taking a leadership role, their responses are the reverse: almost two out of three report that they are motivated primarily by personal reasons and are usually acting as private citizens (Exhibit 3). Nevertheless, more than half of those playing a leadership role say it is integral to their company's approach to corporate citizenship.


Notes

4 In an earlier McKinsey Quarterly survey, fewer than one respondent out of ten thought the corporate management of sociopolitical issues was motivated by a genuine concern about the issues. More than half of the executives in that survey believed public relations and company profits were the primary motivations, while one out of three cited a mix of genuine concern and business reasons. See "The McKinsey Global Survey of Business Executives: Business and Society," The McKinsey Quarterly, Web exclusive, January 2006.



Table of Contents

Enablers and barriers

Executives say that certain factors generally make it easier for them to play a leadership role in addressing public issues and that certain barriers make it harder. These enablers and barriers may partly explain the wide gap between the large share of respondents (44 percent) who would like to see most executives taking a leadership role and the much smaller share (14 percent) who actually do play such a role.

Among executives who say they play a leadership role, the most important enablers of their leadership activities are two factors not directly related to their role as business executives: a strong network of peers with an interest in public issues and a comprehensive set of facts about, and an understanding of, public issues. Executives who do not play a leadership role believe companies with supportive values and culture are most helpful to executives who do lead (Exhibit 4).

Even though executives with a leadership role don't rank membership in a business association particularly high, they are more likely than nonleaders to be a member of at least one (86 percent, compared with 75 percent of respondents who play some role and 47 percent of those who play no role). In addition, they are twice as likely as others to say their business associations are very effective at addressing public issues.

Respondents agree that the most important barrier to playing a leadership role is lack of time. In fact, seven out of ten who play a prominent role—and can judge from personal experience—pick it as one of their three choices, compared with only half of those who do not play a leadership role. By contrast, leaders are far less likely to fear negative publicity. Similarly, twice as many (34 percent) of those who do not play a leadership role perceive a barrier in the form of company policy or culture that discourages employees from taking public positions on public issues (Exhibit 5).




Table of Contents

Professional and private perspectives

As we have noted, any role in addressing public issues can be motivated by business as well as personal reasons and can be undertaken in a business as well as a private capacity. Therefore, in ranking the significance of particular issues, it is interesting to contrast the respondents' views on which issues have the greatest effect on shareholder value against which are most important to them personally.

From both the professional and private perspectives, respondents rate national and global issues as more important than local issues. However, some notable differences emerge when we ask about specific issues. Respondents rate the health of the US economy, federal regulations, and the supply and price of energy as being substantially more important to shareholder value than to themselves personally. By contrast, they rank the US health care system, foreign policy, and education as more important to them personally than to the shareholder value of their companies (Exhibit 6). Education is of particular concern to executives who say they play a leadership role in addressing public issues. These respondents assign significantly higher personal importance to education on the local and national levels than does the average respondent.


About the Contributors

Contributors to the development and analysis of this survey include Sheila Bonini, a consultant in McKinsey's Silicon Valley office; Kerrin McKillop, a consultant in the Washington, DC, office; and Andrew Whitehouse, a consultant in the New York office.

Drive to go green becomes big business: Whether trying to satisfy lawmakers or gain a competitive edge, all sectors are affected by the climate debate


Drive to go green becomes big business

Last Updated: 12:52am GMT 01/02/2007

Whether trying to satisfy lawmakers or gain a competitive edge, all sectors are affected by the climate debate, reports Tom Stevenson

Drive a new Mini Cooper off the forecourt and you can relax in the knowledge that your chic runabout emits 18pc less CO2 than its predecessor, the 2001 relaunch of Sir Alex Issigonis's iconic car.

 
Global carbon emissions charts, Drive to go green becomes big business

At 139 grams of greenhouse gas per kilometre driven, the emissions from BMW's Mini sneak in under the 140 g/km limit the European Automobile Manufacturers Association has committed to achieve by 2008.

European car makers aren't celebrating, however. Despite achieving more impressive CO2 reductions than their peers in Asia and North America, they are under attack from EU lawmakers.

European cars are responsible for no more than 1.5pc of global CO2 emissions, but they are visible to the public and the media and an easy target for bureaucrats looking to score green points. The car makers are almost certain to miss their voluntary 2008 target, which means that they will be hit by punishing new mandatory goals.

Christopher Will, autos analyst at Lehman Brothers, believes that the European car industry will be the first major business casualty of increased climate change concerns. "This is more the result of populist EU politics than scientific fact," he says. "The European electorate is more green than counterparts elsewhere, but depressingly this appears not to be accompanied by any great hunger for the facts."

advertisement

Gary Chase, in Lehman's New York office, sees similar problems ahead for the airline industry. "Aviation has moved into the sights of greenhouse gas regulators, despite contributing relatively little to global warming," he says.

As the charts show, transport is no bigger a polluter than industry or agriculture and is responsible for less carbon than both power generation and changing land use, such as deforestation. Emissions from the developed world are also dwarfed by those in developing countries when measured against economic output.

For the airlines, becoming the focus of public anxiety about global warming is a serious business problem, because aircraft emissions are notably hard to reduce. "There's no silver bullet," Chase says.

The car and airline industries are running fast to keep ahead of the incoming green tide, but they are not the only business sectors to have woken up to the challenges posed by the environmental crusade. According to a study of the business impact of climate change, published today by Lehman Brothers, global warming is a key strategic issue for companies.

John Llewellyn, senior economic policy adviser to the US bank and author of the report, says global warming 'will influence business in ways that are similar to those being wrought by demographic change, and by globalisation, both of which are changing patterns of demand, structures of production, geographic location, and other key parameters that influence firms' behaviour".

As importantly, he believes climate change will be the trigger for sharp and unexpected price shocks as new evidence emerges or government policies change.

For individual firms, Llewellyn believes, the impact of policy changes as a result of global warming can hardly be overstated. "The pace of a firm's adaptation to climate change and related policy will influence whether any given firm survives and prospers, or dies," he concludes.

Llewellyn admits that the global warming debate raises unanswered questions. The impact of positive feedback effects, where rising temperatures themselves trigger further warming, is also unclear. Estimates of the economic costs of limiting climate-damaging emissions are wide-ranging.

But Llewellyn is convinced that the intellectual argument has largely been won. With another landmark study on global warming, by the Intergovernmental Panel on Climate Change, due to be published tomorrow the momentum looks unstoppable, he believes.

Some of the likely winners and losers are unexpected. Lucy Haskins, Lehman's oil analyst, thinks "oil companies will be part of the solution". She quotes Royal Dutch Shell chief executive Jeroen van der Veer: "If the world thinks CO2 is a huge problem, then it is a great opportunity for Shell."

Big Oil understood the significance of global warming early on. Shell is focusing on gas-to-liquid technology to produce clean diesel. BP plans to invest £4.1bn in low carbon power and alternative energy businesses over 10 years.

Lehman expects telecom equipment manufacturers to enjoy a surge in demand for new networks and replacement equipment if sea levels rise materially. The report estimates that 10pc of the world's population lives in coastal zones.

But these same factors could prove catastrophic for the world's chemical industries. Many of the major chemical sites have been built at - and are still planned for - coastal and riverside ports that are vulnerable to flooding.

Lehman estimates that of the global ethylene capacity of 173m tonnes, 45pc is at high risk of flooding. Protecting these plants or relocating inland would have significant capital and transport costs.

For the chemicals industry, therefore, the challenge is largely physical, just as for the car makers it is mainly regulatory. For companies with regular customer contact, such as retailers, reputational and competitive exposure are top of the agenda.

The greening of the supermarkets illustrates PR-savvy environmentalism, driven by real concerns but conscious of the benefits of being seen to care.

According to Llewellyn: "Some parts of business are moving ahead of governments and regulators in reducing their carbon emissions. This is partly out of a desire to jump before being pushed. But what seems to be mainly spurring companies into action is a wish to gain a competitive and reputational edge."

It is not hard to see why Lehman Brothers should take an interest in the business impact of global warming. Arthur Moretti, a fund manager specialising in Socially Responsible Investment, says: "Regulatory changes in response to public sentiment regarding climate change can create a significant liability for a business or, at a minimum, increase the cost of doing business."

Investors want to know which companies best understand the challenges and opportunities: "companies which are aware of the impact their business practices have on the overall environment may create a significant competitive advantage".

ExxonMobil seeks to take its business to greener pastures: Exxon still categorises climate change as a "century-scale problem" issue and advises that policy responses "start gradually and learn along the way"


ExxonMobil seeks to take its business to greener pastures

By Ed Crooks and Fiona Harvey

Published: February 1 2007 02:00 | Last updated: February 1 2007 02:00

For green activists such as Friends of the Earth, ExxonMobil is "the number one global warming villain". Its former chairman and chief executive, Lee Raymond, who retired at the end of 2005, was dubbed the "Darth Vader of global warming" and an "enemy of the planet" by environmental campaigners.

The environmental lobby targeted the oil major not so much for what it has done but for what it has said. Although its contribution to greenhouse gas emissions is greater than those of competitors such as Royal Dutch Shell or BP, it is in the same order of magnitude

But Exxon's executives, and groups it has supported financially, have been vocal in their scepticism about the evidence on climate change and among the most outspoken critics of the Kyoto protocol, the international climate change treaty.

Fresh allegations surfaced this week over the role of Philip Cooney, now an Exxon employee, in softening scientific reports on climate change when he was an official in the Bush administration.

But under Rex Tillerson, Mr Raymond's successor, Exxon is trying to overturn those perceptions. It recognises that no company can afford to exclude itself from the mainstream of the debate on climate change - least of all the world's biggest energy business.

"We feel like we need to get out and be heard ourselves, rather than let other people - including the press - define who they think we are," says Sherri Stuewer, Exxon's vice-president for safety, health and the environment. "For quite some time we have said that we recognise that the accumulation of greenhouse gases in the atmosphere poses risks, and that those risks could prove significant, not only for people but for ecosystems. And on the basis of that risk we are certainly taking actions in our own operations to create the [emissions] reductions.

"I think that position has not been well understood. And perhaps we have not done a good enough job of getting it out."

Exxon denies that the attacks on it by environmental campaigners have forced a change of stance. The protests and boycotts do not seem to have had a noticeable impact on its bottom line. But for a company as scientifically based as Exxon - it has 2,000 science and engineering PhDs on its staff - becoming isolated from the mainstream of scientific thought put it in an uncomfortable position.

Refusing to respond to the threat of global warming has increasingly looked like a poor strategic decision. As the evidence has hardened, previously sceptical voices have been changing their tune or falling silent. Tomorrow the biggest report to date on the state of climate science, from the Intergovernmental Panel on Climate Change, will say with 90 per cent certainty that climate change is happening and is likely to result in a 3°Celsius temperature rise by 2100.

John Llewellyn, senior economic adviser at Lehman Brothers, says: "Companies that see climate change coming, recognise it for what it is, do the relevant R&D and inculcate a positive attitude to change on the part of their management stand to do very well. A company that doesn't believe it and doesn't encourage its managers to take it seriously is going to get rolled over."

Exxon is not making a great strategic U-turn or trying to position itself "beyond petroleum", as did BP. It is unapologetic about its conviction that fossil fuels will continue to dominate the world's energy supplies, and hence its own business, for the next two decades at least.

Mr Raymond notoriously cut R&D into renewable energy on the grounds that none of the alternatives to oil and gas could be commercially viable. Exxon still has no investments in wind, solar, or nuclear energy. But it is highlighting its joint ventures with Toyota and Caterpillar researching ways to improve fuel and engine systems.

It has joined the European Union's CO2 Remove project, looking at ways to capture and store carbon dioxide emissions from power stations. It has promised $100m (£51m, €77m) over 10 years to Stanford University's Global Climate and Energy Project, conducting early-stage research into potential future energy sources.

It has also moved a long way in its engagement with the debate over the right response to global warming. Many of the fiercest attacks on Exxon came over its support for think-tanks and lobby groups that challenged the scientific consensus on global warming, such as the Competitive Enterprise Institute.

Last month the Union of Concerned Scientists, an environmental campaign group, published a report arguing that "to serve its corporate interests, ExxonMobil has built a vast echo chamber of seemingly independent groups with the express purpose of spreading disinformation about global warming".

Ms Stuewer rejects the charge that Exxon has supported "junk science" on climate change, saying its arguments have been over policy responses, not the scientific evidence. "Often organisations have been characterised as sceptical on the issue of climate when their comments have really been focused on Kyoto as a policy," she says. "We need to be clear that questioning whether Kyoto is the right approach to climatepolicy is not and should not be synonymous with being a climate sceptic."

Exxon has long supported serious climate science, she says, at institutions such as the Massachusetts Institute of Technology, Columbia, and Britain's Hadley Centre.

But it has recently dropped its funding for several groups, including the CEI, and taken up support for others, including Resources for the Future, a non-partisan think-tank.

But despite this shift, Exxon still categorises climate change as a "century-scale problem" issue and advises that policy responses "start gradually and learn along the way".

That runs counter to the view of the urgency of global warming taken by the scientists of the Intergovernmental Panel on Climate Change, the body convened by the United Nations to advise on global warming. Its report, drawing on the work of 2,500 climate scientists over the past six years, will warn that climate changes are already taking place and will accelerate. As a result, Rajendra Pachauri, IPPC chairman, has advised cutting emissions quickly and substantially.

Charlie Kronick, senior policy adviser at Greenpeace, says: "If [Exxon] is taking this position [that there is time to gradually decrease emissions over several decades] they can't be serious. The science tells us very clearly the problem is urgent.

"This isn't a long-term problem," he says. "Scientists are telling us we have 10 to 20 years to take action against climate change."

Exxon has also not yet formed a view about which policies it would advocate. As it admits, its support risks putting the kiss of death on any proposal.

Inside the company, policy options are being debated, and Exxon has set out principles that should guide policy. These say, among others, that it should promote global participation, maximise the use of markets to promote efficiency and be as transparent as possible for both businesses and consumers.

But Ms Stuewer gives a pointer towards what Exxon might eventually support. "I think we've been fairly consistent in our position that target-setting, as embodied in the Kyoto protocol, had some pretty serious flaws. Among them is that it does not seem to be an effective way to bring the developing world into participating in greenhouse gas emission reductions," she says.

"Cap-setting is extremely difficult, both practically and politically. Mistakes in that process can end up producing volatility - and that volatility makes investment planning very difficult."

Corporate Environmental Leadership: Green is the colour of success!


Corporate Environmental Leadership: Green is the colour of success!
VANCOUVER, January 31, 2007 (GLOBE-Net) – Forward thinking corporations that stepped ahead of the pack to make environmental factors part of their core business strategies used to be the exception to the norm. Yet many have gone on to become the leaders of their respective sectors, both in terms of environmental sustainability and long term profitability. As the links between environmental leadership and positive financial returns become clearer, more mainstream companies are incorporating sustainability principles into their long term business plans, and are changing the global marketplace in the process.

Introducing sustainability principles in areas such as product design, production, supply chain management, energy and waste management, and marketing eventually can translate into substantial environmental and economic benefits. Realizing these benefits is seldom easy and not always certain. But firms that rise above the difficulties of change management to actually achieve results often set a new benchmark for others to follow.

There are two key dimensions of effective corporate environmental leadership. First, any initiative must actually result in environmental improvements. Investors, consumers and the general public tend to view corporate declarations of environmental virtue with considerable scepticism. Announcements that have little substance behind them are quickly exposed as 'green washing', and any potential environmental benefit that might result will be overshadowed by questions about motive or sincerity. In this arena, a corporation must demonstrate a true commitment to sustainability in order to reap benefits in terms of public acceptance. In effect, you have to walk the talk.

Secondly, the payoff for environmental leadership eventually must come back to the corporation in terms of long term value or financial rewards. These benefits can be direct cost reductions resulting from improved energy efficiencies or waste minimization, or be available in the future in terms of strategic competitive advantage. Some benefits may seem intangible, such as goodwill and community respect. But ultimately responsible environmental stewardship must also have a positive impact on the bottom line. Government regulation and consumer market preferences help create the incentive for companies to 'go green', but ultimately it boils down to profit.

Tony Hayward, recently designated as the new head of BP, one of the world's largest energy companies, said at a recent GLOBE conference "You used to not be able to discuss business and the environment in the same sentence." He added, "there is only one bottom line: profit - but profit is enhanced and sustained by good social and environmental performance."

A select number of leading corporations have seized upon the environment as both a strategic issue and a requirement of good corporate citizenship. While some have realized direct material gains as a result, it is clear that the progressive thinking and environmental leadership has played a large part of their formulas for success and has led them to the top of their respective sectors.

Leading the pack

Toyota was among the first automotive companies to consider the environment as a major strategic factor in corporate decision-making. After developing an electric car that was unsuccessful commercially, Toyota retooled the technology into a hybrid car program in the early 1990s, at a time when its chief competitors were committed to conventional engines and larger vehicles.

A decade and a half later, the Toyota Prius is the top selling hybrid vehicle worldwide. Nearly 800,000 have been sold so far, and by extending the hybrid system to several other models, Toyota expects to sell more hybrids in 2006 than total car sales by Mercedes Benz or Cadillac. As the technology becomes more cost-effective, it will translate into sizeable benefits for the company that are far beyond even Toyota's early estimates.

Toyota's share of the U.S. auto market was 15.4% in 2006, more than double its 1990 share. Partly as a result of the hybrid technologies it developed, and the environmental commitment to develop more fuel efficient cars, Toyota is poised to become the world's largest automobile manufacturer in 2007.

The relationship between sustainability and value is clear in Toyota's case. There are several other large corporations that have made major environmental commitments in the past few years, and while the results have yet to be fully realized, these companies also expect to make huge gains based on their green initiatives.

GE launched its 'ecomagination' initiative in 2005, committing to double spending on environmental technologies and to launch products and services to provide consumers with clean air and water. In doing so, the company expects to double its revenue from environmental technologies to at least $20 billion in 2010, through products such as wind turbines, solar panels, water desalination equipment, and energy efficient appliances.

CEO Jeff Immelt was clear that the move was not a public relations exercise. "We think green means green," he said. "This is a time period where environmental improvement is going to lead toward profitability. This is not a hobby to make people feel good."

GE has already seen growth in sales for its renewable energy products, but the real gains may be yet to come. Should the United States enact a cap on greenhouse gases, which many think is inevitable, products that reduce emissions will be high demand. At that point, GE's experience in renewable energy, hydrogen technology, and energy efficiency could help them seize a dominant share of those markets.

DuPont is another major multinational that has made a recent green strategy announcement with its 2015 Sustainability Goals. The company says it will continue to invest heavily in research and development programs for 'sustainable' products, and expects to realize additional revenues of US $6 billion or more by 2015 from products that reduce greenhouse gas emissions, cut water consumption, or provide other environmental benefits.

Apart from selling sustainable products to others, companies can profit by reducing their own environmental impact and increasing efficiency. DuPont claims it has cut greenhouse gas emissions by 72 percent since 1990, saving $3 billion of costs in the process; the company plans to reduce emissions by a further 15 percent by 2015.

Dow Chemical has also set sustainability goals for 2015, building upon the first set developed in 1996. Ramesh Ramachandran, President of Dow Chemical Canada, speaking at the opening plenary at GLOBE, said "It is possible to have an extremely profitable business today plus be good environmental stewards and be socially responsible. They are not competing goals. Tomorrow's customers have made it very clear they will punish us severely if we ignore these goals."

The most obvious example of a green market shift comes from Wal-Mart. The world's largest retailer, ranked second in the Fortune 500, last year launched an environmental initiative with three ambitious goals: (1) to be 100 percent supplied by renewable energy; (2) to create zero-waste; and (3) to sell sustainable products.

CEO Lee Scott was also motivated by the opportunity for profit, expecting to save billions in costs through energy efficiency, and seize upon growing markets for energy efficient appliances, compact fluorescent light bulbs, organic foods, and other environmental products.

Encouraging change through results

Should it be successful, Wal-Mart's actions will spur others to integrate environmental considerations into their business strategies. But for others to follow, Wal-Mart's green initiatives must do more than help the environment; they must also make money.

Some environmental strategies have direct and immediate financial implications. Selling more energy efficient compact fluorescent bulbs and organic foods will have an impact on Wal-Mart's bottom line within the first year of its strategy; how fast those markets grow will determine their return on investment. Toyota, DuPont, Wal-Mart and GE are all generating revenue by selling environmental products and services, and hope to capitalize on continued growth in the market.

Other corporate moves related to the environment are more forward-thinking, aimed at earning profits in the future, even though the opportunity may not exist now. Actions to reduce greenhouse gas emissions largely fall into this category for North American companies. Although there is no legal requirement at the moment for companies to cut emissions, many firms are investing now to ensure they will have the capacity to respond to tighter restrictions in a carbon constrained future, which many business leaders believe will happen within the next five years.

Suncor Energy for example, was one of the first companies in Canada to develop a complete climate change and greenhouse gas strategy. Through investments in technology such as hydrotransport, waste heat capture and cogeneration, it has reduced greenhouse gas emissions per unit of production by 32% since 1990.

Apart from some financial benefits due to process and energy efficiency, Suncor also thinks of climate change as a strategic issue, and hopes to benefit in the future from a carbon trading system or other regulatory regime. Through investments in wind power, carbon capture and storage, and a greenhouse gas emissions strategy, Suncor and other progressive oil companies have positioned themselves to be leaders in the changing energy future.

A study by investment analysts Innovest Strategic Value Advisors showed that when climate change regulations are introduced, the best positioned company could earn windfall revenues of $298 million or 10.6% of earnings, while the worst could lose 25 percent of earnings to compliance costs.

Wal-Mart also sees "huge potential" for earning carbon credits by reducing greenhouse gas emissions throughout its operations and its supply chain. Companies that are investing now and experimenting with voluntary carbon markets such as the Chicago Climate Exchange are building their capacity to undertake emissions assessments, identify areas for improvement, and complete emissions trading transactions; these firms are well positioned to profit in the future from what is already a $20 billion global market. It is still too early to quantify the results of these early actions, but they may be significant, and the focus on environment and climate change has also helped many companies improve their overall efficiency.

Some experts have predicted that providing fresh, clean water will be one of the largest market opportunities in this century, and companies that have been involved in water and wastewater treatment over the last decade are now reaping the benefits. For a company operating in Canada ten or twenty years ago, investing in water efficiency or purification may not have been a priority given the abundance of available clean water. But environmental leadership shown then is now bearing fruit as countries around the world seek solutions to growing shortages of potable water.

There are also environmental initiatives which are difficult to link directly to sales, but which can help a company's bottom line in other ways. Extractive companies in the mining and oil and gas sectors often refer to a 'license to operate'. Some view environmental stewardship as essential to their project planning and approval processes. Positive relationships with local populations, governments and other stakeholders often are the keys to a successful venture. In other cases, the process of evaluating a firm's environmental impacts and identifying areas for action can lead to innovation and improvements that cut costs or increase revenues.

Investors are also cognizant of the material impacts of sustainability. A list of the 100 most sustainable corporations according to environmental, social, and governance criteria was recently compared to the benchmark MSCI World Index over a five year period, showing that the sustainably-ranked companies significantly outperformed the market. As more investors recognize that environmental leadership can lead to profits and push up share prices, corporate executives will no doubt be motivated to explore relevant opportunities and risks and to take the necessary steps to maximize the long term value and sustainability of their businesses.

Promoting leadership

Although corporate leaders and investors see increased profits and investment returns as the measure of success of environmental leadership, sharing best practices with others and receiving public recognition for outstanding efforts are also important considerations.

DuPont, Suncor, and over a dozen other corporate leaders in Canada are members of the EXCEL (Excellence in Corporate Environmental Leadership) Partnership, an initiative of the GLOBE Foundation of Canada and managed by the Delphi Group of Ottawa. Created out of a desire to change the traditionally antagonistic relationship between environmental or social performance and financial expectations, the Partnership brings its members together to develop, integrate and improve sustainable development in their corporate strategies, organizations and business models. Each member of the Partnership is a leader in its sector, and each has demonstrated a commitment to corporate environmental leadership. Find out more at www.excelpartnership.ca.

The value of such initiatives is that it allows companies to communicate their strategies and learn from others in the process. The collaborative nature reinforces the commitment to sustainability and enshrines it in a corporation's culture, leading to improved efforts in the future. Organizations such as the World Business Council for Sustainable Development and the United Nations Global Compact fulfil similar roles, and boast the majority of the Fortune 500, the world's largest corporations, as members.

These groups also provide a forum for companies to communicate their sustainability progress with the public, the government, and other stakeholders. Publicly communicating the successes of one firm will motivate others to do the same, and provide the intangible value of positive publicity to those that have already led the way.

The GLOBE Awards for Environmental Excellence seek to do just that. By recognizing companies and industry groups that have made extraordinary efforts to balance competitive business strategies and sustainable development, the GLOBE Awards have added a new dimension of public approbation for excellence. Past winners have demonstrated that sustainability principles can contribute to any successful business model, and can serve as examples to others in their industries. Nominations for the 2007 Awards are now being accepted, with information available on the GLOBE Awards website.

There has always been corporate environmental leadership on some level, but the past few years have seen unprecedented engagement of sustainability by executives at major firms. The environment is now seen as a strategic pillar of business performance and financial stability, and the long term value of any firm is now inextricably linked to its environmental achievements.

The next decade will show how the results of the environmental initiatives of Toyota, DuPont, Dow, Suncor, Wal-Mart and others have both impacted those companies' profitability, and transformed the market as a whole. Given recent trends it seems likely that they will be well rewarded for their efforts, and their environmental leadership will prove to be a key to their long term business success.

Multi-nationals seek carbon trading pricing: A group of multinational corporations has joined with the International Emissions Trading Association (IETA) to promote greenhouse gas emissions trading and a global price for carbon


Multi-nationals seek carbon trading pricing
DAVOS, Switzerland, January 29, 2007 (GLOBE-Net) – A group of multinational corporations has joined with the International Emissions Trading Association (IETA) to promote greenhouse gas emissions trading and a global price for carbon.

Swedish utility giant Vattenfall AB, Canadian aluminum and materials firm Alcan Inc., and North American power company Duke Energy Corporation will work with the IETA, other leading industries, and financial institutions to promote the growing carbon market. The cooperative effort was announced at the World Economic Forum's annual meeting, where the theme of climate change has been heavily discussed.

"Putting the right price on greenhouse gas (GHG) emissions is key to combating climate change," said Lars G. Josefsson, President and Chief Executive Officer of Vattenfall AB. "This is best done by establishing a global emissions trading system which will safeguard that abatement measures will be carried out where they are least costly. As we create a scarcity of emission rights, market forces will unfold and accelerate the breakthrough of new low-emission technologies."

The companies are reacting to growth in emissions trading regulations in Europe, and more recent developments in jurisdictions such as California and the North-eastern United States.

The announcement echoes a call for a United States cap-and-trade system made by a group of major corporations and environmental organizations. The United States Climate Action Partnership (USCAP) is asking for a 10 to 30 percent cut in emissions over the next fifteen years, using a cap-and-trade system. According to the companies involved, the threat of climate change is now great enough that action must be taken, and a national program is essential to avoid a patchwork of state-level regulations. Member firms include Alcoa, BP, Caterpillar, DuPont, and General Electric, all of which produce significant greenhouse gas emissions and would be directly affected by the legislation.

Duke Energy, the United States' third largest coal consumer, is a member of both groups. Duke CEO Jim Rogers said that there is no 'silver bullet' to address climate change, and that energy efficiency, renewable energy, 'clean coal', natural gas and nuclear are all part of the solution.

"Expanding the GHG market into a global market will ensure that climate change is being addressed effectively, efficiently and takes advantage of business innovation and entrepreneurship, as well as produce a more liquid and competitive market, with one global price for carbon," said Daniel Gagnier, Senior Vice President, Corporate and External Affairs, Alcan Inc.

The coalition of Vattenfall, Alcan, Duke and the IETA says that through the European Union Emissions Trading Scheme (EU ETS) and Kyoto Protocol mechanisms, there is currently an established price for carbon. Because of this, companies with emissions obligations in Europe can make business decisions to invest in new technologies or processes. As well, the price per tonne of carbon has encouraged investment in a range of areas in developing countries, the group says.

"A global carbon price is what business needs to make informed decisions and we are moving rapidly in that direction. We will learn more as we try it, we will make corrections, but there is no going back," concluded Andrei Marcu, President and Chief Executive Officer, IETA.

How to avoid buying 'dirty gold': The gold on your finger may have cost more than mere cash. But one designer is creating jewellery with a conscience


How to avoid buying 'dirty gold'
The gold on your finger may have cost more than mere cash. But one designer is creating jewellery with a conscience
By Kate Burt
Published: 01 February 2007

So you're an environmentally enlightened couple, engaged to be married. You're doing your bit to plan a green wedding - you've included a charity gift of tree-planting on your wedding list to help offset the hefty carbon footprint created by the honeymoon in Mauritius; the menu is almost all seasonal and locally sourced, and at least the engagement ring on your or your fiancée's finger, and the wedding rings you will exchange, are ethically and environmentally sound, right? Well, no, almost certainly not. And you may be surprised to discover why.

While the Kimberley Process, a certification programme introduced in 2003, now guarantees that 99 per cent of diamonds sold in the UK and 69 other signed-up countries are "conflict free", the provenance of the gold in which your stone is set remains dubious. In fact, it's almost certainly at least as unethical as stones from areas controlled by rebel forces, as well as being environmentally catastrophic, according to designer Katharine Hamnett, who this month is launching a range of wedding and engagement rings that use not only certified "clean" Canadian diamonds, but also "Green Gold", in association with the ethical jewellery company Cred.

"People think clothing is a nightmare," says the fashion designer, who brought organic cotton, sweat-shop awareness and political T-shirts to the mainstream. "But gold is a nightmare." "And yet nobody has a clue," adds Cred's Greg Valerio, Hamnett's partner in the jewellery venture, who is with her today at the designer's north London studio. "Nearly all the gold in the world is made into jewellery, and jewellers flog it as if it's an innocent bit of lovey dove. It's not. Look," he continues, pointing at his own well-worn wedding ring, "that is three tonnes of toxic waste right there."

"People just don't realise how gold is mined," explains Hamnett. "Effectively, a mining company will blow up a mountain, crush it - gone, so it doesn't exist any more - and then pour cyanide over the rubble to draw out the gold."

According to Oxfam America, one mine in Papua New Guinea generates 200,000 tons of this cyanide-laced waste rock per day. The disposal of such vast amounts of waste is often highly problematic. It is stored in reservoirs (which can leak), or dumped in rivers, lakes or the sea. According to the American research institute World Watch, when a dam in Romania containing such waste broke in 2000, some 100,000 cubic metres of waste water containing cyanide and heavy metals made its way into the Danube, killing around 165 tons of fish.

In smaller-scale mining operations mercury, instead of cyanide, is often used to leach gold from the rock. But this job is often done "in a backroom with a blowtorch", says Valerio, so that the toxic air is inhaled by the workers - often children, because the work is not physically demanding. Exposure to high levels of mercury can permanently damage the brain.

Counting the Cost of Gold, a report by international aid agency, Cafod, claims toxic waste is just the tip of the gold-mining nightmare. Ecological destruction is immense: two-thirds of newly mined gold is extracted from open-pit mines so large that some are visible from space. There are also tales of large-scale forced evictions and displacements.

Rather than feeling defeated under the weight of the enormous changes that the jewellery industry needs to undergo to be even halfway ethical and environmentally sound, Cred is starting small, but very solidly working towards rebuilding things from the ground up.

The organisation is partners with a pioneering non-profit corporation, Green Gold, which works with mining communities in Colombia and aims to reverse the damage done to ecosystems by large-scale mining. Green Gold creates locally managed mines that use no toxic chemicals, incorporate reforestation, limit waste and obtain legal approval for proposed mines. It ensures profit is pumped back into the community.

"It's amazing," says Hamnett. "They've gone back to using Aztec and Mayan techniques; the miners bank up the soil and save it, which creates these inverted ziggurats." In the void, gold is extracted by hand before pits are gradually refilled. Meanwhile, the gold is washed by pan.

Miners are taught by an environmental agency to understand the area's biodiversity so that they can reforest appropriately. Refining is done as naturally as possible, using a local refiner committed to minimising chemical usage and safe waste management. The whole process is independently certified and the end product is then sold to Cred under a Fairtrade premium.

It was a cause crying out for the high-profile, Hamnett touch. "I'd always meant to do a jewellery range but never got around to it until I met Greg," she explains. "And now I'm really glad because I wouldn't want to be responsible for three tons of toxic waste every time I did a gold ring. It's really exciting."

Just don't call Hamnett an "eco-warrior". "My ethos on environmentally friendly products is that they've got to gorgeous - to be exactly the same as the normal product. No 'eco look' - people don't want that. It's got to look super luxury and posh to compete with the likes of Boucheron and Cartier."

The range includes a solitaire, a classic wedding ring and a diamond-studded eternity ring. Prices range from £700 to £25,000. While much of Cred's cut will be ploughed into expanding the business model, Hamnett is launching a foundation to support farmers converting to organic.

The enterprise is timed to tap into the huge boom in consumer awareness of organic and Fairtrade. And after a reluctant start, the jewellery industry slowly seems to be taking note. Last year, the Council for Responsible Jewellery Practices was set up, representing jewel giants such as Cartier, Tiffany, America's National Mining Association and the World Gold Council, and a new International Cyanide Management Code has been introduced for mining companies.

"I see this as a 15-year journey," says Valerio. "At the end, it will have become completely socially unacceptable to buy jewellery that is not ethically and environmentally sound."

How to avoid buying 'dirty gold'

Buy from a company such as Cred, that sells jewellery certified as ethically and environmentally sound.

Start a petition to ask jewellery retailers to ensure gold items are ethically produced. Send copies to the National Association of Jewellers and National Association of Goldsmiths.

Get involved in Cafod's Unearthing Justice campaign (www.cafod.org.uk/ unearthjustice) to see what you can do. If you are a jeweller, sign up to the charity's Golden Rules and implement them.

Buy vintage or recycled jewellery, or find a jeweller willing to make new gold items by melting ones you're no longer keen on.

Check your investments: if you have money invested in gold mining companies, you may be able to use your shareholder voice to call for change.

Ask questions: is your jeweller is a member of the Council for Responsible Jewellery Practices? If not, why not? Make a fuss in shops about knowing the provenance of the jewellery that you buy - if consumers demand it, the industry will somehow have to think about supplying it.

Climate change technology key issue at Davos: One of the priority areas outlined was the need to transfer clean technologies to developing countries such as India and China


Climate change technology key issue at Davos
DAVOS, Switzerland, January 29, 2007 (GLOBE-Net) – Climate change was one of the top issues for discussion at the World Economic Forum in Davos last week, reflecting increased concern among global business and political leaders about the economic and social threat it represents. One of the priority areas outlined was the need to transfer clean technologies to developing countries such as India and China, which are increasing greenhouse gas emissions with economic growth.

A survey of Forum participants revealed that environmental protection is viewed as the second most important priority, behind economic growth and ahead of poverty, war, and terrorism. One fifth of respondents chose the environment as the top priority, and seventeen conference sessions were explicitly focused on climate issues. The annual gathering brings more than 2,000 influential global leaders from business and politics together to talk about challenges facing the world.

German Chancellor and current G8 President Angela Merkel said in her opening speech that climate change and energy security were top priorities for the world, and British Prime Minister Tony Blair urged leaders of the G8 and other leading countries to develop a climate change framework to take over when the first phase of the Kyoto Protocol expires in 2012. Blair made a similar appeal at Davos in 2005, when he held the G8 Presidency.

Sir Nicholas Stern, author of a 700-page report on the economics of climate change which estimates that unchecked climate change will cost the world at least 5% of global GDP each year, or $3 trillion, was also present at the conference.

The focus on climate change follows a year in which the issue has received unprecedented attention on an international level. Media coverage has increased, with climate change appearing on the cover of magazines such as Time and The Economist.

Scientific evidence is mounting, and extreme weather events also helped focus public attention. The result has been engagement of climate change by political and business leaders, the most powerful of which attend the Davos meeting each year.

The conference comes just ahead of the release of a draft of the United Nation's comprehensive climate change review, the Intergovernmental Panel on Climate Change's 4th assessment report. The report is expected to say the there is a greater than ninety percent probability that human-caused greenhouse gas emissions are to blame for temperature increases since 1950.

A recent report produced by the World Economic Forum on Global Risks concluded that the way in which climate change is dealt with at the global level will be a leading indicator of the world's capacity to manage globalization in an equitable and sustainable way. The Forum has accused world leaders of failing to keep climate promises and says that the corporate sector must be more strongly engaged on the issue.

Organizers said that at least 20 countries asked for meetings with business leaders during the Forum to discuss global warming. Issues on the formal agenda include the potential of renewable energy sources, nuclear power, the economics of green technologies and a global carbon tax.

Clean technologies for the developing world

One of the most important issues discussed was the growth of rising economies like China and India, and the need to deploy cleaner energy technologies to mitigate rising greenhouse gas emissions from their primary energy sources of coal and oil. Global climate efforts risk being undermined if the developing world cannot access clean technologies, officials heard.

Zhang Xiaoqiang, Vice-Chairman of China's National Development and Reform Commission, said that while China intends to follow the Kyoto Protocol and try to lower its emissions, industries such as cement and steel production are only half as energy efficient as technologies used in the industrialized world. To make emissions reductions China will need help from developed countries, he said.

"We need to try to develop but we want technology to save energy. We want to strengthen cooperation with developed countries," Zhang said, calling for a "know-how exchange".

Montek S. Ahluwalia, Deputy Chairman of India's Planning Commission, said that India will also seek improved technologies. India will suffer the effects of climate change, and "It's clear that business as usual is not going to work," he said. "We should work within the existing system and build on it."

Both China and India are reluctant to commit to emissions reduction targets that may hamper their economic growth, especially considering that many industrialized countries will not meet their own targets, added Ahluwalia.

S. Kiang, Chairman of the Peking Peking University Environment Fund, said that China does care about sustainable development because it is linked to job creation. In terms of supplying clean energy, he said that "Evolution is not enough, we need a revolution". Kiang said that China can make significant improvements in energy efficiency, and a particular focus should be how urbanization can continue in a sustainable way.

China is the world's largest coal consumer, and India also uses enormous amounts of coal for its electricity supply. One area in which technology can make a contribution to emissions reductions is through the use of 'clean coal' technologies to bring major energy consumers to the table, said David Runnalls President and CEO of the Winnipeg-based International Institute for Sustainable Development (IISD). He added that the pressure should not be placed on China alone, as industrialized countries have a large opportunity for greater efficiencies and reductions on consumption.

Jacques Aigrain, CEO of reinsurance giant SwissRe, said that India and China echoed the call for clean coal: "It is essential that we facilitate the transfer of clean energy solutions to both India and China. Coal ... is the only readily available energy source in those two countries, so we need access to clean coal solutions."

Renewable energy sources are promising but will not be able to displace all fossil fuels, and the transfer to nuclear power is slow and potentially risky, some participants said.

Green technology transfers

Some international climate change efforts have already advocated for technology transfer, but so far it appears that little movement has been made. The six-nation Asia-Pacific Partnership on Clean Development and Climate, involving the United States, Japan, China, India, South Korean and Australia, has adopted a technology-based approach led by industry groups. With major coal consuming and producing countries on board, the coalition has been viewed as a vehicle for 'clean coal' transfer.

The Kyoto Protocol's Clean Development Mechanism encourages clean technology deployment in the developing world by offering industrialized countries the opportunity to earn carbon credits by investing in emissions reductions projects in the developing world. Were Canada to install clean technology at a coal plant in China for instance, it would earn carbon credits to be applied to our Kyoto target. Private enterprises involved in such projects can earn carbon credits to be sold on the international market or used as part of a domestic cap-and-trade plan.

"Climate Challenge" -- Your goal is to curb CO2 emissions and pull in the reigns on global warming without running the economy in to the ground or upsetting constituents to the point that you're booted from office. Got What it Takes?


Thanks to Norbert for this one (once again, what a find!). The comments below are his

although apparently simple, the game requires a card-shark's ability to keep track of all the options.  What is interesting is that there appears to be a lot of euros available to do things.  Although it was not clear from the beginning, after completing the game you get rated on the environment, wealth and popularity.  Clearly these three ratings are inter-related.  Also, the various measures that can be taken are also related to each other.  The program obviously 'knows' how the dials and knobs work - at the end of the day, it is a systems optimisation problem.  Perhaps the intent is to have the players model the game?
       Regards, Norbert



http://www.treehugger.com/files/2007/01/bbcs_climate_ch.php

BBC's "Climate Challenge" -- Got What it Takes?
by
Collin Dunn, Seattle on 01.31.07
Take Action

bbc-climate-challenge.jpg

The BBC has produced a Flash-based "Climate Challenge" that puts you at the helm of Europe as "President." Your goal is to curb carbon emissions and pull in the reigns on global warming without running the economy in to the ground or upsetting constituents to the point that you're booted from office, and it does a pretty fair job of highlighting the complexities of maintaining the balance without being impossibly difficult. As much as anything, it's a game of political juggling, leveraging the economy through green technology while working to keep emissions down and morale up; you can choose to promote wind power, ramp up building regulations for greater efficiency and invest in fuel cells. Subsidize carbon-cleaning technology in other countries, and they might sign on to help reduce their emissions; leave them out, and you might be lonely when you need their support. It's not all renewable energy and carbon reduction, though; impose a fuel tax and expect to take a hit at the polls, and if you neglect to plan to keep food and water production going, it costs in money, popularity and carbon emissions. It's fairly easy to end the game (at the end of the 21st century) with high ratings on one of the three considerations, but it takes more doing to get positive marks on two; this TreeHugger hasn't been able to properly balance all three just yet. If you have a few minutes to kill and want to see if you've got what it takes to lead Europe into a carbon-free future, click on over and start pulling the strings. ::BBC's "Climate Challenge" via ::Open the Future


31.1.07

TII Annual Conference, Paris - Call for Papers on CSR, technology innovation and development - Feb 16 deadline


The following call for papers (forwarded by Colin Harrison) is for a conference held in Paris in May; one of the eight tracks is entitled "Corporate Social Reponsibility", but all tracks relate in one way or another to our community's goals. I'd encourage anyone with a spare moment to submit a proposal for a paper, I'll attempt to do likewise (if one of us gets accepted, we'll worry about the travel approvals then!). If anyone wants to collaborate on a topic, let me know.

Jean-François Barsoum                                                                                    
Gestion de l'innovation :: ThinkPlace :: Master Innovation Catalyst
1360 Boulevard René-Lévesque Ouest, Montréal (Québec)   H3G 2W6  Canada
jbarsoum@ca.ibm.com | tel (514) 964-4192 | fax (845) 491-2412
 
Corporate Responsibility/ Responsabilité sociale : News / Nouvelles  | W3 Community / Communauté W3  | W3ki
Alternative Energy / Énergie propre: News / Nouvelles  | W3 Community / Communauté W3
Value on TAP : W3 Blog

TIInewlogo2.gif

TII Annual Conference - Innovation for Development -
3-4 May 2007, Paris
Call for Papers


We are pleased to send you the preliminary programme of the 2007 TII annual conference, which will be held in Paris, on the theme of 'Innovation for Development'. We are also pleased to announce that we will be organising our conference this year in collaboration with the United Nations Educational, Scientific and Cultural Organisation, UNESCO, which will provide additional interesting input to the programme and will host the conference in their Fontenoy conference centre, close to the Eiffel Tower in central Paris. The conference programme will offer an interesting mix of contributions from policy makers, funding agencies, industry, science and technology developers and innovation support practitioners, and two half-days have been reserved for parallel presentations via a call for papers.

The current call for papers is open until 16 February 2007 and we are interested in hearing from you about your first-hand experience of working with developing and emerging countries or about projects and initiatives which you consider to be transferable to developing country contexts. The 8 themes which have been selected for the parallel sessions on 3 and 4 May are as follows:
- Technologies for development (1)
- University partnerships
- Exchanges with emerging countries - the Asian connection
- Intellectual property in the development equation
- Technologies for development (2)
- Knowledge transfer from the research base
- Innovation support policies and services
- Corporate social responsibility
If you or a colleague is interested in submitting a paper on a theme which falls within one of the above subject areas (please see the attached programme for additional information and suggestions), then please send us a half-page abstract to
tii@tii.org by the close of Friday 16 February 2007. Those selected to give a presentation at the conference will be offered a reduced conference fee of €250. On-line registration for the conference, as well as a list of conveniently located hotels offering special rates, are available on the TII website. We look forward to welcoming you to our annual conference and to learning from your experience of harnessing innovation for the benefit of developing and emerging countries.

With kind regards,


Christine Robinson

--------------------------------
Secretary General

TII asbl, 3, rue Aldringen
L-1118 Luxembourg
Tel: +352 46 30 351• Fax: +352 46 21 85
Web:
http://www.tii.org; email: tii@tii.org
--------------------------------

30.1.07

Making the most of the world's energy resources: Demand for energy is set to grow rapidly during the next 15 years—unless governments, businesses, and consumers take advantage of the many substantial, economically viable, and technologically proven opportunities to boost energy productivity


Making the most of the world's energy resources

Demand for energy is set to grow rapidly during the next 15 years—unless governments, businesses, and consumers take advantage of the many substantial, economically viable, and technologically proven opportunities to boost energy productivity.

Diana Farrell, Scott S. Nyquist, and Matthew C. Rogers

2007 Number 1


It isn't easy to be optimistic about energy resources these days. The supply of fossil fuels on the Earth, the number of rivers amenable to damming, the amount of arable land available to generate biomass, the willingness of citizens to accept the perceived risks of nuclear power—all of these have limits. And it isn't clear how quickly scientists can develop innovative alternatives.

Furthermore, a recent McKinsey Global Institute (MGI) analysis of the economic sectors most responsible for the end use of energy indicates that overall demand, which has increased by 1.6 percent a year for the past decade, is on track to grow by 2.2 percent annually over the next 15 years (see sidebar "Modeling energy demand").1 Developing countries such as China account for the largest part of this growth. Curbing demand for energy in the emerging world would mean asking its consumers to reduce their newfound expectations of comfort, convenience, and economic growth—an unacceptable proposition for them.

Is there an escape from the vice grip of finite supplies and surging demand? We believe there is. Both developed and developing economies could use energy more productively by reducing the raw-materials inputs required to produce a given level of energy use, increasing the quantity or quality of the economic output from a given set of energy inputs, or both. These approaches wouldn't call for reducing the benefits that energy's end users enjoy.

As part of a broader report on global energy markets, MGI has uncovered many opportunities to boost energy productivity beyond base-case levels. All are substantial, economically viable, and technologically proven.2 MGI identified large opportunities across all the sectors we studied, including residential use, industrial use, and power generation. In these and many other sectors, capturing the wide variety of opportunities for greater productivity—each boasting an internal rate of return (IRR) of at least 10 percent—could cut the growth in annual global energy demand, through 2020, to 0.6 percent, from the base case of 2.2 percent.

Market-distorting subsidies, information gaps, misaligned incentives, and other market inefficiencies now undermine energy productivity. Consumers often lack the information and capital they need to use energy more productively and tend to make comfort and convenience higher priorities. Manufacturers of consumer products such as the automobile often don't invest in energy efficiency because they cannot recoup the savings that consumers would enjoy. Businesses refrain from boosting energy productivity because energy costs are fragmented. And a range of policies—particularly subsidies—dampen price signals and give end users less incentive to become more efficient.

It would be far from easy to implement the remedies: removing policy distortions, making the price and usage of energy more transparent, and selectively deploying demand-side energy policies, such as building codes and efficiency standards for appliances. But if policy makers muster the political will to put incentives in place, and if businesses and consumers respond, the results will be dramatic. A 25 percent drop in overall consumption by 2020, relative to business-as-usual growth, is achievable. Because many of the opportunities lurk in emission-intensive areas (such as electricity use and power generation, as well as industrial use in developing countries) such a decline would bring about a corresponding 27 percent reduction in carbon dioxide emissions. (For a detailed analysis of the relative economics of available approaches to decreasing greenhouse gas emissions, see "A cost curve for greenhouse gas reduction," available late January.)

Why energy productivity matters

When wildcatters struck oil in the United States, the Caucasus, and the Middle East, cheap and seemingly limitless supplies encouraged its use in countless ways. The resulting new products and services and automation of processes stimulated economic growth, labor and capital productivity, and, of course, demand for energy. The oil crises of the 1970s awakened the world to the need for and possibility of constraints, and the policy changes, technological innovations, and consumer and business choices that followed shifted the global economy to a more energy-productive path. Today's surging demand calls for a renewed focus on energy productivity.

What does energy productivity mean?

MGI defines energy productivity as the ratio of value added to energy inputs. Like labor or capital productivity, energy productivity thus measures the output and quality of the goods and services generated with a given set of inputs. Today, it stands at $79 billion of GDP per quadrillion British thermal units (QBTUs).3

Energy prices, business practices, market forces, and government policies all influence energy productivity. Japan leads the world here thanks to consistently high energy prices and strict government energy efficiency standards based on the best practices of leading companies. Japanese gas- and coal-fired power plants are 70 percent more energy productive than Russian ones, and Japan's 2007 standards for room air conditioners are nearly 50 percent stricter than their Chinese counterparts. The Arab Gulf, by contrast, is among the least energy-productive parts of the world as a result of large, sustained energy subsidies and an energy-intensive growth model. Similarly, US cars are 15 percent less energy efficient than European ones in the same class, partly because European gasoline taxes are roughly seven times higher and partly because US regulatory exemptions have long helped automakers market SUVs as light trucks, which are subject to less stringent fuel-efficiency rules than passenger vehicles.

Economies can improve energy productivity in two ways:

  • They can generate a given level of energy-related benefits with fewer inputs by using energy less intensively (with smaller appliances, for example), using energy in a more technically efficient way (car engines that use less fuel, say), or changing the mix of fuel they use (for instance, by switching from wood-burning stoves to electric ranges powered by coal-generated electricity).
  • They can increase output more rapidly than demand for energy by changing the composition of economic activity. Energy productivity rises, for example, when growth shifts from more to less energy-intensive sectors—from steel, say, to services, or to higher value-added activities within services.
Since 1980 changes in input intensity, technology, the fuel mix, and economic activity have generated annual worldwide energy productivity improvements of roughly 1 percent a year—a pace that should continue over the next decade and a half in the absence of significant changes in the way energy regulations and markets operate. The pace will continue to be most rapid in emerging markets, particularly China, simply because they start from very low energy productivity levels that provide huge opportunities for improvement (Exhibit 1). The rapid construction of new urban housing, for example, should help the country boost its residential energy productivity by 2 percent a year.


How energy productivity is related to global demand

Unfortunately, the gain of 1 percent a year in energy productivity over the past decade has been outstripped by global energy demand, which has risen by 1.6 percent a year. In the near future, that demand is likely to grow even faster—by 2.2 percent a year in MGI's base-case scenario. Growth of this magnitude would increase global energy demand to 610 QBTUs in 2020, from 422 QBTUs in 2003 (see sidebar "Sources and uses of energy today").

That growth comes mainly from rapidly developing emerging markets, which together are projected to generate nearly 80 percent of the growth in world energy demand in our base case through 2020 (Exhibit 2). China, with six of the ten sectors likely to grow most quickly, represents 32 percent of world growth. In contrast, India's growth in energy demand represents just 4 percent of the world total through 2020. One explanation for the lower Indian figure is that rapid urbanization should lead to a significant change in the mix of fuels residential consumers use—from relatively inefficient biomass (wood and dung, which today meet roughly 80 percent of India's residential energy needs) to electricity.

Although these projections rest on bottom-up forecasts of demand in dozens of microeconomic sectors, they are subject to considerable uncertainty. In particular, the rate of global GDP growth (3.2 percent in MGI's base-case scenario) will have a major impact on the rate of growth in energy demand.4 Our analysis indicates that GDP growth, particularly in developing economies, will drive the biggest swings in global energy demand. Higher than expected GDP growth would boost growth in energy demand to 2.7 percent a year (an increase in global energy demand of roughly 50 QBTUs by 2020 over the base case), while slower GDP growth would reduce demand (from the base level) by around 50 QBTUs.5

Sustained oil prices of $70 a barrel would cut global energy demand much less—by roughly seven QBTUs. A key explanation for this modest reduction is a complex brew of market failures, market-distorting public policies, and information and capital constraints. In addition, changes in relative prices induce energy users to switch to other fuels—from gasoline to biofuels for transportation, from natural gas to coal for generating electricity—but don't reduce overall energy demand as significantly. And high oil prices boost GDP and energy demand in the Arab Gulf region, where energy productivity is low, thereby partially offsetting lower GDP and energy-demand growth in more efficient, oil-importing regions.

Boosting energy productivity

All this should make clear the inextricable relationship between energy demand and energy productivity: the higher the productivity, the lower the demand at any level of GDP. But to make energy productivity grow more quickly, a variety of targeted interventions will be needed.

Seeking out the opportunities

Conventional technologies with an IRR of 10 percent or more offer tremendous opportunities for improving productivity in a broad range of end-use areas. Capturing these opportunities would reduce growth in global energy demand to below 1 percent annually (from 2.2 percent in the base-case scenario) while shrinking projected 2020 end-use demand—perhaps 610 QBTUs—by somewhere between 116 and 173 QBTUs, some 19 to 28 percent of total energy demand (Exhibit 3). To put these figures in context, consider the fact that if nonhydroelectric renewable power sources increased their share of global power generation from 2 percent today to 5 percent in 2020, and if biofuels boosted their share of the transportation fuel market to 10 percent, from 1 percent, all of these sources would contribute only about 30 QBTUs to the world's energy supply in 2020. What's more, rather than requiring subsidies, energy-productivity opportunities provide a positive rate of return, freeing up resources that could be consumed elsewhere or invested for faster growth. We consider some of the most promising opportunities below.

Residential heating and lighting. With 25 percent of global energy demand, residential property represents the largest energy-use segment. Key opportunities include fitting out new homes with tight building shells, including chemically treated windows to reduce the amount of cold that comes in during the winter and the amount of heat that comes in during the summer; high-grade insulation; compact fluorescent lighting; and solar water heaters. In addition, higher efficiency standards for appliances and reductions in standby power requirements yield positive returns and simultaneously cut demand for energy. We estimate that these and other technologies in lighting, heating, and cooling could slow growth in residential energy demand to 0.5 percent a year, from 1.4 percent, and reduce 2020 energy demand by 15 QBTUs (or 3 percent of the total).

Electricity generation and distribution. Another large opportunity would come from reducing the losses that arise in generating and distributing electricity. In 2003, 129 QBTUs (30 percent of global energy use) were needed to generate 57 QBTUs of delivered electricity—meaning that generation and distribution consumed nearly 60 percent of all energy inputs. This implies a conversion rate (energy delivered divided by energy used) of around 40 percent. Some of the losses are unavoidable, but even today conversion rates range from under 30 percent in older coal plants to more than 50 percent in newer gas ones. We estimate that new technologies, such as advanced combined-cycle gas turbines, with an IRR of 10 percent or more, could reduce demand by 18 QBTUs as of 2020.

By then, the expansion of China's power sector will represent 13 percent of the growth in global energy demand. If China meets it by building new, high-efficiency coal plants, the country's overall energy demand will fall by 7 QBTUs—more than 1 percent of the global total—by 2020.

Steel, refining, and other industrial sectors. There are enormous opportunities to improve energy efficiency by replacing the least efficient tail of production with current technologies and by implementing currently economical energy-saving upgrades. These opportunities could reduce global energy demand roughly 65 QBTUs by 2020.

In the US steel industry, for instance, realizing a large number of small opportunities, such as expanding cogeneration and improving recuperative burners,6 would allow steel mills to cut their demand for energy by about 30 percent. The opportunity in the developing world's steel mills, which are some 20 percent less efficient than their US counterparts and could be maintained more efficiently thanks to less expensive labor, is even larger.

Similarly, recent demonstration projects in US petroleum refineries have highlighted numerous opportunities with a payback of one year or less—opportunities that taken together would raise the sector's energy productivity by 12 percent.7 As with steel, the opportunities in developing countries should be larger because their refineries are relatively inefficient.

Paper manufacturers can boost their energy productivity by introducing equipment such as extended nip presses, which extract an additional 5 to 7 percent of water from intermediate products, thereby reducing the load on relatively less energy-efficient dryers. Cement makers can save energy by fitting out their traditional ball mills (used to grind materials such as limestone) with high-pressure roller presses or by replacing those mills with more modern horizontal roller mills.

Correcting market failures

In view of today's high oil prices, why haven't companies and consumers already seized the opportunities? The answer is that systematic market failures involving consumers, businesses, and governments dampen the demand response to changes in price. Any effort to boost energy productivity must take these issues into account.

  • Consumers, information, and capital. Most consumers lack information about the range of energy productivity improvements available to them, even though exploiting these improvements would serve their economic interests. Furthermore, to capitalize on energy productivity opportunities, consumers must often make up-front capital investments for which they have neither the funds nor the desire. Another issue, particularly in developing countries, is the fact that energy savings are often highly fragmented and their impact on household expenditures murky. As a result, the benefits of greater energy productivity are often obscured by the consumer's focus on using energy for comfort, convenience, style, and health or safety. And since few consumers are willing to pay now for energy savings in the future, suppliers of energy-consuming products (such as cars and appliances) have less incentive to develop, produce, or market energy-efficient technologies and features.
  • The relative unimportance of energy costs to business. Total US energy costs now represent less than 10 percent of the value of the output in all nonenergy sectors—indeed, less than 5 percent for most economic activities. Energy efficiency is thus typically a minor consideration, at most, when businesses invest in equipment such as automated- manufacturing tools or IT hardware. Many companies require a payback of three years or less (corresponding to an IRR of more than 30 percent) for capital expenditures to reduce energy consumption.
  • Governments and subsidies. Energy productivity is systematically undermined by government policies. For starters, many developing-world industries that transform energy or use it intensively are state owned, which often reduces the financial incentives to improve energy productivity. What's more, at least 20 percent of current global energy demand is subsidized or priced in a nonmarginal way, and both practices reduce or eliminate incentives to use energy as productively as possible. These energy-distorting policies include fuel subsidies in oil-producing countries in the Middle East and elsewhere, a lack of metering for the gas used in Russia's homes (setting energy's marginal cost at zero), and widespread energy subsidies for state-owned enterprises. Not surprisingly, energy efficiency in these areas lags behind global best practice dramatically.
The first step for governments hoping to solve these problems is to remove policies, such as subsidies, that discourage energy productivity. Governments should also look for sector-specific opportunities to promote it. Building codes and appliance-efficiency standards, for example, can help overcome the information barriers that inhibit many consumers from installing more efficient heating and lighting. Codes and standards are also helpful in dampening the impact of an agency problem in the construction industry: builders of offices, apartments, and homes often have little incentive to focus on energy efficiency, because the potential occupants may be reluctant to spend more now for a building that promises energy savings in the future.

Innovative companies also have a role to play in ameliorating market failures. Consider, for example, a general problem: energy users implicitly place extremely high discount rates on investments in fuel-efficient technologies, thereby limiting their adoption. Creative sales terms, perhaps developed through collaborations between utilities and the companies that sell the relevant technologies, could bridge the time gap and dampen the impact of high discount rates.

The right policies are likely to vary by region. Average fuel economy targets would have a faster impact in countries such as China, where new vehicles purchased over the next 15 years will represent most of the country's stock of automobiles. By contrast, in the United States, where the stock of vehicles will turn over more slowly, higher gasoline taxes would create broader incentives for existing car owners to use private cars less and public transport more and to move closer to the workplace.

The world faces many problems whose scope and complexity make them virtually intractable, but energy doesn't have to be one of them. If leaders muster the political will to eliminate market inefficiencies, companies and consumers will seize attractive energy productivity opportunities and create a brighter future.

Modeling energy demand

The energy demand analysis undertaken by MGI and McKinsey's global energy and materials practice diverged from conventional approaches in two ways. First, we made end use the foundation of our analysis and therefore allocated the power sector's energy consumption and losses to end-use segments instead of following the standard distinction between "primary" and "delivered" energy demand. Our approach helped us to arrive at a single figure for global demand, while capturing the full range of behavioral and policy factors influencing demand in each end-use segment.

Second, we employed a microeconomic perspective. The more common macroeconomic approach, which many energy analysts use, involves pairing historical year-on-year GDP growth figures with the corresponding numbers for energy demand growth at both the national and fuel level—for example, oil demand in Japan—and then finding the long-term correlations. MGI's microeconomic approach, by contrast, is based on the fact that global energy demand is really nothing more than the sum of demand in hundreds of microeconomic sectors, such as road transportation in China and residential energy consumption in the United States. We covered nearly 60 percent of global energy demand by conducting detailed case studies of nine microeconomic sectors1 and used extrapolation techniques for the remainder.

In each sector, we broke down energy demand into its key components: demand for energy services (for instance, how many refrigerators or cars?), the intensity of usage (how big are the energy-consuming devices and how often are they used?), the efficiency of usage (say, what gas mileage or how many kilowatt-hours per cubic meter?), and the fuel mix (for example, how much gasoline or diesel?). The outcomes for any sector vary from country to country because of different development levels, urbanization rates, and policy environments, among other factors.

Finally, we developed dynamic, forward-looking scenarios that model the way these factors might respond to different price and policy environments. By aggregating sector-level insights into a global end-use model for energy demand, we parsed current and potential future demand by sector (exhibit), country, fuel, and region.

Return to reference

Notes

1 MGI has nearly 15 years of experience applying this methodology to such diverse areas as productivity, offshoring, foreign direct investment, and capital markets.

 

Sources and uses of energy today

In 2003 the world used 422 quadrillion British thermal units of energy. Petroleum products met a third of this demand (about 76 million barrels a day, or 145 QBTUs annually); coal and natural gas, 100 and 90 QBTUs, respectively. The remainder was split among many fuels, including biomass.

Consumers (as opposed to industrial users) accounted for more than 50 percent of total energy demand and for 60 percent of demand in the developed world (exhibit). On the national and regional level, the largest energy consumers are the United States, with 92 QBTUs (22 percent of the global total); Europe, with 86 QBTUs (20 percent); and China, with 60 QBTUs (14 percent). The sectors that now consume the largest amounts of energy are US road transport (5.4 percent of global energy demand), residential heating and lighting in China and the United States (4.0 and 4.5 percent, respectively), and US commercial buildings1 (3.5 percent).

Return to reference

Notes

1 Commercial buildings are nonresidential and nonindustrial. Typical examples include retailing and office real estate, and common energy applications include heating, operating appliances, and lighting.

About the Authors

Diana Farrell is director of the McKinsey Global Institute, Scott Nyquist is a director in the Houston office, and Matt Rogers is a director in the San Francisco office.

The authors would like to acknowledge the contributions of Pedro Haas, Jaana Remes, Jaeson Rosenfeld, and Jonathan Woetzel to this article.

Notes

1 MGI analyzed the residential, commercial, industrial, transportation, and energy generation and refining sectors, with an emphasis on China, the European Union, and the United States. For details, see MGI's full report, Productivity of Growing Global Energy Demand: A Microeconomic Perspective, November 2006, available free of charge online.

2 World energy productivity is currently on track to increase by 1 percent a year through 2020 as a result of shifts to services (which are less energy intensive than manufacturing), higher-value products, and more efficient technologies.

3 Energy productivity is the inverse of the energy intensity of GDP (the ratio of energy inputs to GDP), currently 12,600 BTUs of energy consumed per dollar of output produced. While both MGI's productivity metric and the more standard BTU-per-dollar-of-output one are useful diagnostic tools, placing GDP in the numerator heightens the emphasis on the benefits of efficiently boosting growth in output.

4 MGI's global growth forecast is approximately 0.5 percent higher across all end-use sectors than the corresponding projections of the International Energy Agency World Energy Outlook 2004. The sources of the additional growth we project are more rapid industrial expansion in China and faster overall growth in the Middle East and in middle-income Europe.

5 Our model's assumptions of high and low GDP growth rest on growth that would be two percentage points above and below the forecast base-case rates in China and India, one percentage point above and below the forecast base-case rates in other emerging markets, and half a percentage point above and below the forecast base-case rates in developed countries.

6 Devices that control the loss (in the form of flue gases) of the heat that goes into the high-temperature furnaces used in steelmaking. Without a recuperative burner, a steel manufacturer can lose up to 50 percent of the heat it puts into them.

7 One such demonstration project is the effort (cosponsored by the US Department of Energy) at Equilon Enterprises' Martinez plant, in northern California.

Efficiency is Crucial to a Green Future: out of the ~97 quads (1 quad = 10^15 BTUs) generated from various sources in the US in 2002, 56.2 quadswere wasted, lost, unused for any valuable work


Thanks to Norbert for this great link

http://www.treehugger.com/files/2007/01/efficiency_cruc.php


Efficiency is Crucial to a Green Future
by
Michael Graham Richard, Gatineau, Canada on 01.29.07
Science & Technology (alternative energy)

usenerflow-exa-01.gif

When we say that efficiency is crucial for a green future, we mean it. Look at these graphs from the Lawrence Livermore National Laboratory (they are similar to those used by Amory Lovins in his book Natural Capitalism and in his Winning the Oil Endgame video presentation). They show that out of the ~97 quads (1 quad = 10^15 British thermal units) or ~103 exajoules (1 exajoule = 10^18 joules) generated from various sources in the US in 2002 (nuclear, hydro, biomass, natural gas, coal, petroleum), 56.2 quads or 59.3 exajoules were wasted, lost, unused for any valuable work. That's more than half. We all need to take a moment and seriously think about that.

The ratios for U.S. Energy Trends were pretty similar in 2001, 2000, 1999, 1998, etc. It's not a recent trend.

For those who think that radically increasing efficiency (in energy and materials) is a pipe dream and that we're already doing what we can do, we suggest having a look at the aforementioned Natural Capitalism, the Rocky Mountain Institute's publications on energy, the Factor 4 - Doubling Wealth, Halving Resource Use book (a bit older, but still relevant) and the Factor 10 Institute.

global_elec_gen_416gr.gif

There is also a very recent study titled [R]evolution (pdf) by the European Renewable Energy Council (EREC) and Greenpeace International which concludes that "half of the world's energy needs in 2050 could be met by renewables and improved efficiency". It highlights different scenarios for different parts of the world, with a different mix of renewable energy sources depending on what would work best (more wind in Northern Europe and North-America, more solar in the Middle-East, etc), but a past of cheap energy, bad design (or at least not energy-efficient design) and inertia mean that big efficiency gains can be made everywhere.

Political will is another big element. Unlike what some people seem to believe, political will doesn't just come out of nowhere. The public needs to demand these changes (that's already observable: in countries where the population has a higher level of eco-awareness, the politicians don't have a choice but to propose green measure, but where the level of eco-awareness is low, the politicians can more easily ignore pressing environmental issues without paying a political price).

So educate yourself, spread the word and demand change.

::[R]evolution Study (pdf), ::Energy roadmap backs renewables, ::The energy [r]evolution starts here, ::U.S. Energy Flow — 2002

Last Updated: Thursday, 25 January 2007, 14:45 GMT


E-mail this to a friend Printable version


Energy roadmap backs renewables

Solar mirrors (Image: BBC)
The report calls for energy supplies to enter a "solar generation"



Half of the world's energy needs in 2050 could be met by renewables and improved efficiency, a study claims.

It said alternative energy sources, such as wind and solar, could provide nearly 70% of the world's electricity and 65% of global heat demand.

Following a "business as usual" scenario would see demand for energy double by 2050, the authors warned.

The study, by the German Aerospace Center, was commissioned by Greenpeace and Europe's Renewable Energy Council.



READ THE REPORT

Energy [R]evolution (4.3MB)
Most computers will open this document automatically, but you may need Adobe Reader

Download the reader here



The report, Energy Revolution: A Sustainable World Energy Outlook, provided a "roadmap" for meeting future energy needs without fuelling climate change, said Sven Teske from Greenpeace International.

"We have shown that the world can have safe, robust renewable energy, that we can achieve the efficiencies needed and we can do all of this while enjoying global economic growth," he said.

He added that the strategy outlined in the report showed that it was economically feasible to cut global carbon dioxide (CO2) emissions by almost 50% over the next 43 years.

'Solar generation'

The report calls for ageing fossil fuel and nuclear power plants to be replaced by renewable generation when they reach the end of their operational lives.

"Right now, we have five main sources of energy - oil, coal, gas, nuclear and hydro. In our scenario, we have solar, wind, geo-thermal, bio-energy and hydro," Mr Teske told BBC News.



Pollution from a factory in north-eastern China
If you look at our scenario for China, you will see that the demand for coal will increase over the next 10 years

Sven Teske,
Greenpeace International



He added that they had developed 10 regional scenarios to highlight which renewable sources would be most effective in particular parts of the world.

"Of course, for the Middle East we have a lot of solar power, while northern Europe and North America will have a lot more wind energy in the mix.

"We also dissect it by sector," he added. "Renewables will dominate the electricity sector, and the heating and cooling sectors.

"By 2050, in our scenario, the majority of fossil fuels will be used in the transport sector."

See how the world's electricity generation could look in 2050

China is pushing ahead with a rapid building programme for fossil fuel power plants to sustain its economic growth. A statistic often quoted is that it is effectively bringing a 1GW coal power station online each week.

As these plants are expected to be operating for at least 40 years, there is concern that this is "locking" greenhouse gas emissions into the world's energy supply for decades to come.

Mr Teske said this had been factored into their figures: "If you look at our scenario for China, you will see that the demand for coal will increase over the next 10 years because we have assumed that all the power plants being constructed will be used."

He added that the increase in demand for energy in emerging economies and developing nations would be balanced by greater efficiencies being made in developed nations.

But he said that it would not mean rich nations would have to "freeze in the dark"; strict energy standards would ensure only the most efficient electrical goods, heating systems and vehicles would go on sale.

Political will

The best way to curb greenhouse gas emissions without harming economic growth has made its way to the top of the political agenda.



Congestion on a US freeway (Image: EyeWire)
The majority of fossil fuels in 2050 will be used in the transport sector

The European Commission recently published its strategic review, outlining a range of measures that it felt would deliver a reduction in emissions while not undermining energy security.

These included tighter efficiency standards for goods and housing in the EU; strengthening the European Emissions Trading Scheme; and plans to revamp the region's energy market.

However, plans to introduce legislation to limit CO2 emissions from cars were shelved after disagreements within the commission and further afield.

The apparent lack of political consensus on the best way to proceed was a concern, especially as a number of nations were currently reviewing the shape of future energy supplies, said Arthouros Zervos, president of the European Renewable Energy Council.

"What we want to believe is that there is a change in the minds of politicians, especially after what we have seen happen to the climate," Professor Zervos told BBC News.

"We hope this report will have an effect on the political decision making process."

Graph showing global electricity generation in 2050 (BBC)

Return to top






The energy [r]evolution starts here

25 January 2007

View over Dan Nan wind farm in Nan'ao, China. This province has the  best wind resources in China and is already home to several industrial  scale wind farms. China is investing heavily in wind power to meet its  growing energy needs.

Developing countries like China can develop and grow using renewable energy to avoid the mistakes of old climate-changing energy economies of developed countries.

Enlarge Image

Tackling dangerous climate change is the biggest challenge facing us all. Fortunately there is an answer to this challenge. Our report: 'energy [r]evolution', details how to halve global CO2 emissions by 2050, using existing technology and still providing affordable energy and economic growth. In short - a revolution in energy policy and an evolution in how we use energy.

The debate about climate change is over. Solutions are needed now. The energy [r]evolution is the road map for how to provide power for everyone without fuelling climate change.

We don't need to freeze in the dark. We don't need to build nuclear power plants. We don't need to cripple economic growth. We can make a safe and sustainable world energy scenario a reality.



We can have reliable renewable energy, and use energy more smartly to achieve the cuts in carbon emissions required to prevent dangerous climate change. Crucially this can be done while phasing out damaging and dangerous coal and nuclear energy.

Sven Teske, our energy expert, took a leading role in producing the report: "The Energy Revolution scenario comes as the world is crying out for a road map for tackling the dilemma of how to provide the power we all need, without fuelling climate change. "Renewable energies are competitive, if government's phase-out subsidies for fossil and nuclear fuels and introduce the `polluter-pays principle`. We urge politicians to ban those subsidies by 2010."

Chinese woman works below 21st century renewable energy technology.

Chinese woman works below 21st century renewable energy technology.

The plan also details how large developing countries like India, China and Brazil can develop and grow using renewable energy to avoid the mistakes of old climate-changing energy economies of developed countries.

The Energy Revolution is not just our vision for the future. It was written with the
European Renewable Energy Council (EREC) and in conjunction with specialists from the German Space Agency and more than 30 scientists and engineers from universities, institutes and the renewable energy industry around the world.

Revolution in energy policy


"The stone age did not end for lack of stone, and the oil age will end long before the world runs out of oil."



Sheikh Zaki Yamani, former Saudi oil minister.

 It is clear that current 'business as usual' approach to energy supply cannot continue. However the longer we delay making significant change, the tougher those changes will need to be. In the next three years, major energy investment will be made in countries around the world. We have the opportunity to say farewell to old, polluting energy sources and to welcome in a new, more efficient and conflict-free energy future.

Politicians need to grasp this chance with both hands or be the ones whose negligence helped ensure dangerous climate change to be inevitable. You can help ensure a change by voting for politicians who support the Energy [R]evolution.

Evolution in energy use


Governments and industry need to drive a massive change in the way energy is produced.  But we as individuals also have to drive a massive change in the way we use energy.

Using energy smartly can double energy efficiency by 2050. With a few simple steps,
every one of us can do our bit.

Revolution and evolution are unforgiving forces. Nobody wants to be on the wrong side of either one. But it's time to choose: all of us are either part of the [r]evolution, or we're part of the problem. And unless all of us are part of the solution, all of us have a problem.

Take action

Support us



U.S. Energy Flow — 2002

Energy Flow Charts | U.S. Energy Flow — 2002

The first flow chart gives quantities in quads and below that is the chart in exajoules. A quad is one quadrillion (1015) Btu's. An exajoule is 1018 joules.

U.S. Energy Flow Trends — 2002 (in quads)

U.S. Energy Flow Trends — 2002 (in exajoules)

McKinsey on what companies need to do to prepare for a low-carbon future


A cost curve for greenhouse gas reduction

A global study of the size and cost of measures to reduce greenhouse gas emissions yields important insights for businesses and policy makers.

Per-Anders Enkvist, Tomas Nauclér, and Jerker Rosander

2007 Number 1


The debate about greenhouse gases is heating up. Across a wide spectrum, some voices argue that emissions and climate aren't linked, while others urge immediate concerted global action to reduce the flow of emissions into the atmosphere. Even the advocates of action disagree about timing, goals, and means. Despite the controversy, one thing is certain: any form of intensified regulation would have profound implications for business.

Our contribution on this topic is not to evaluate the science of climate change or to address the question of whether and how countries around the world should act to reduce emissions. In this article we aim instead to give policy makers, if they choose to act, an understanding of the significance and cost of each possible method of reducing emissions and of the relative importance of different regions and sectors. To that end, we have developed an integrated fact base and related cost curves showing the significance and cost of each available approach, globally and by region and sector. Our other purpose is to help business leaders understand the implications of potential regulatory actions for companies and industries. Indeed, regulation is already on the minds of many executives. A recent survey1 indicates that half of all companies in Europe's energy-intensive industries regard the European Union's Emissions Trading Scheme (EU ETS) as one of the primary factors affecting their long-term investment decisions.

As the baseline for our study, we used the "business-as-usual" projections for emissions growth2 from the International Energy Agency (IEA) and the US Environ-mental Protection Agency (EPA). We then analyzed the significance and cost of each available method of reducing, or "abating," emissions relative to these business-as-usual projections. Our study3 covers power generation, manufacturing industry (with a focus on steel and cement), transportation, residential and commercial buildings, forestry, and agriculture and waste disposal, in six regions: North America, Western Europe, Eastern Europe (including Russia), other developed countries, China, and other developing nations. It spans three time horizons—2010, 2020, and 2030—and focuses on abatement measures that we estimate would cost 40 euros per ton or less in 2030. Others have conducted more detailed studies on specific industries and geographies. But to our knowledge, this is the first microeconomic investigation of its kind to cover all relevant greenhouse gases, sectors, and regions.

Reading the cost curves

The cost curves we developed show estimates of the prospective annual abatement cost4 in euros per ton of avoided emissions of greenhouse gases,5 as well as the abatement potential of these approaches in gigatons of emissions. The abatement cost for wind power, for example, should be understood as the additional cost of producing electricity with this zero-emission technology instead of the cheaper fossil fuel-based power production it would replace. The abatement potential of wind power is our estimate of the feasible volume of emissions it could eliminate at a cost of 40 euros a ton or less. Looked at another way, these costs can be understood as the price—ultimately, to the global economy—of making any approach to abatement cost competitive or otherwise viable through policy decisions. A wide range of assumptions about the future cost and feasible deployment rates of available abatement measures underlie the estimates of their cost and significance. For example, the significance of wind power assumes that actions to abate greenhouse gases will have already begun across regions by 2008. The volumes in our model (and this article) should be seen as potential abatement, not as forecasts.

Our model for the "supply" of abatement can be compared with any politically determined target ("demand") for abatement in the years 2010, 2020, and 2030. The science of climate change is beyond the scope of our study and our expertise, however. We thus compare, for illustrative purposes, our findings on supply with three emissions targets discussed in the debate—targets that would, respectively, cap the long-term concentration of greenhouse gases in the atmosphere at 550, 450, or 400 parts per million (a measure of the share of greenhouse gas molecules in the atmosphere). The goal of each target, according to its advocates, is to prevent the average global temperature from rising by more than 2 degrees Celsius. Any of these emissions targets would be challenging to reach by 2030, for they would all require at least a 50 percent improvement in the global economy's greenhouse gas efficiency (its volume of emissions relative to the size of GDP) compared with business-as-usual trends.

A simplified version of the global cost curve (Exhibit 1) shows our estimates of the significance and cost of feasible abatement measures in 2030—the end year of a period long enough for us to draw meaningful conclusions but short enough to let us make reasonably factual assumptions. We have developed similar cost curves for each sector in each region and for each of the three time frames.

At the low end of the curve are, for the most part, measures that improve energy efficiency. These measures, such as better insulation in new buildings (see "Making the most of the world's energy resources"), thus reduce emissions by lowering demand for power. Higher up the cost curve are approaches for adopting more greenhouse gas-efficient technologies (such as wind power and carbon capture and storage6) in power generation and manufacturing industry and for shifting to cleaner industrial processes. The curve also represents ways to reduce emissions by protecting, planting, or replanting tropical forests and by switching to agricultural practices with greater greenhouse gas efficiency.

We have no opinion about the demand for abatement or the probability of concerted global action to pursue any specific goal. But the application of our supply-side research to specific abatement targets can help policy makers and business leaders to understand the economic implications of abatement approaches by region and sector, as well as some of the repercussions for companies and the global economy. Our analysis assumes that the focus would be to capture all of the cheapest forms of abatement around the world but makes no judgment about what ought to be the ultimate distribution of costs. Of course, the ability to pay for reducing emissions varies greatly between developed and developing economies and among individual countries in each group.

For simplicity's sake, we compared our cost curve with the 450-parts-per-million scenario—in the midrange of the targets put forward by advocates. This scenario would require greenhouse gases to abate by 26 gigatons a year by 2030 (Exhibit 2). Under that scenario, and assuming that measures are implemented in order of increasing cost, the marginal cost per ton of emissions avoided would be 40 euros. (As a point of reference, since trading under the EU ETS began, in 2005, the price of greenhouse gas emissions has ranged from 6 to 31 euros a ton.)

We had to make many assumptions about future cost developments for these measures and the practical possibilities for realizing them. We assumed, for instance, that the cost of carbon capture and storage will fall to 20 to 30 euros per ton of emissions in 2030 and that 85 percent of all coal-fired power plants built after 2020 will be equipped with this technology. These assumptions in turn underpin our estimate that it represents 3.1 gigatons of feasible abatement potential.

In a 25-year perspective, such assumptions are clearly debatable, and we make no claim that we are better than others at making them. We believe that the value of our work comes primarily from an integrated view across all sectors, regions, and greenhouse gases using a uniform methodology. This model allows us to assess the relative weight of different approaches, sectors, and regions from a global perspective.

The supply of abatement approaches

Our analysis offers some noteworthy insights. It would be technically possible, for one thing, to capture 26.7 gigatons of abatement by addressing only measures costing no more than 40 euros a ton. But because these lower-cost possibilities are highly fragmented across sectors and regions—for instance, more than half of the potential abatements with a cost of 40 euros a ton or less are located in developing economies—an effective global abatement system would be needed to do so. Politically, this may be very challenging.

What's more, power generation and manufacturing industry, so often the primary focus of the climate change debate, account for less than half of the relatively low-cost potential (at a cost of up to 40 euros a ton) for reducing emissions (Exhibit 3). The implication is that if policy makers want to realize abatement measures in order of increasing cost, they must also find ways to effectively address opportunities in transportation, buildings, forestry, and agriculture. This potential is more difficult to capture, as it involves billions of small emitters—often consumers—rather than a limited number of big companies already subject to heavy regulation. Looking at specific measures, nearly one-quarter of the abatement potential at a cost of up to 40 euros a ton involves efficiency-enhancing measures (mainly in the buildings and transportation sectors) that would reduce demand for energy and carry no net cost. The measures we include in this category do not require changes in lifestyle or reduced levels of comfort but would force policy makers to address existing market imperfections by aligning the incentives of companies and consumers.

Further, we found a strong correlation between economic growth and the ability to implement low-cost measures to reduce emissions, for it is cheaper to apply clean or energy-efficient technologies when building a new power plant, house, or car than to retrofit an old one. Finally, in a 2030 perspective, almost three-quarters of the potential to reduce emissions comes from measures that are either independent of technology or rely on mature rather than new technologies.

The role of developing economies

Even though developed economies emit substantially more greenhouse gases relative to the population than developing ones, we found that the latter account for more than half of the total abatement potential at a cost of no more than 40 euros a ton. Developing economies have such a high share for three reasons: their large populations, the lower cost of abating new growth as opposed to reducing existing emissions (especially in manufacturing industry and power generation of high-cost developed markets), and the fact that tropical countries have much of the potential to avoid emissions in forestry for 40 euros a ton or less (Exhibit 4).

Forestry measures—protecting, planting, and replanting forests—make up 6.7 gigatons of the overall 26.7 gigatons of the potential abatement at a cost up to 40 euros per ton.7 We estimate that for no more than 40 euros a ton, tropical deforestation rates could be reduced by 50 percent in Africa and by 75 percent in Latin America, for example, and that this effort could generate nearly 3 gigatons of annual abatement by 2030. Major abatements in Asia's forests would cost more, since land is scarce and commercial logging has a higher opportunity cost than subsistence farming in Africa and commercial agriculture in Latin America.

In agriculture and waste disposal, which produce greenhouse gases such as methane and nitrous oxide, developing economies also represent more than half of the 1.5 gigatons of possible abatements costing no more than 40 euros a ton. Abatement measures in this sector would include shifting to fertilization and tillage techniques that generate fewer emissions and capturing methane from landfills.

Reducing growth in energy demand

An additional 6 gigatons—almost a quarter of the total abatement potential at a cost of 40 euros a ton or less—could be gained through measures with a zero or negative net life cycle cost. This potential appears mainly in transportation and in buildings. Improving the insulation of new ones, for example, would lower demand for energy to heat them and thus reduce emissions. Lower energy bills would more than compensate for the additional insulation costs. According to our model, measures like these, as well as some in manufacturing industry, hold the potential to almost halve future growth in global electricity demand, to approximately 1.3 percent a year, from 2.5 percent.

As for measures that would have a net cost, we found that around 35 percent of all potential abatements with a net cost of up to 40 euros a ton involve forestry; 28 percent, manufacturing industry; 25 percent, the power sector; 6 percent, agriculture; and 6 percent, transportation.

A power perspective

The power sector represented 9.4 gigatons, or 24 percent, of global greenhouse gas emissions in 2002, the latest year that consistent global figures are available across all sectors. In the IEA's business-as-usual scenario, emissions from power generation will increase to 16.8 gigatons a year in 2030 as a result of a doubling of global electricity demand. Five key groups of abatement measures costing 40 euros a ton or less are relevant to the power sector: reducing demand, carbon capture and storage, renewables, nuclear power, and improving the greenhouse gas efficiency of fossil fuel plants. Com-bined, these measures hold the potential to reduce the power sector's total emissions to 7.2 gigatons by 2030 (Exhibit 5).

Among power generation technologies, nuclear (at 0 to 5 euros a ton for avoided emissions) is the cheapest source of abatement and nearly cost competitive with power generated by fossil fuels. We estimate that abatements from carbon capture and storage could cost 20 to 30 euros a ton by 2030; those from wind power could average around 20 euros a ton, with a wide cost range depending on the location and on the previous penetration of weather-dependent electricity sources. In our model, the overall additional cost to the power sector of achieving the target of 450 parts per million, compared with the business-as-usual scenario, would be around 120 billion euros annually in 2030. This figure illustrates the very significant potential implications, for companies in the power sector, of any further actions that regulators may take to reduce greenhouse gas emissions.

Addressing the abatement potential described above would likely create a major shift from traditional coal and gas power generation to coal plants with carbon capture and storage, to renewables, and to nuclear power. In our model, coal-fired plants using carbon capture and storage would increase their share of the world's power generation capacity from nothing in 2002 to 17 percent by 2030; renewables (including a big but slow-growing share for large-scale hydropower), to 32 percent, from 18 percent; and nuclear power, to 21 percent, from 17 percent. Fossil fuel power generated without carbon capture and storage would decrease to 30 percent, from 65 percent.

Low-tech abatement

The role of technology in reducing emissions is much debated. We found that some 70 percent of the possible abatements at a cost below or equal to 40 euros a ton would not depend on any major technological developments. These measures either involve very little technology (for example, those in forestry or agriculture) or rely primarily on mature technologies, such as nuclear power, small-scale hydropower, and energy-efficient lighting. The remaining 30 percent of abatements depend on new technologies or significantly lower costs for existing ones, such as carbon capture and storage, biofuels, wind power, and solar panels. The point is not that technological R&D has no importance for abatement but rather that low-tech abatement is important in a 2030 perspective.

What are the implications?

Our analysis has revealed a number of important implications for each sector and region, should regulators choose to reduce emissions. We summarize the primary overall conclusions below.

Costs for reducing emissions

For the global economy, the cost of the 450-parts-per-million scenario described in this article would depend on the ability to capture all of the available abatement potential that costs up to 40 euros a ton. If that happens, our cost curve indicates that the annual worldwide cost could be around 500 billion euros in 2030, 0.6 percent of that year's projected GDP. However, should more expensive approaches be required to reach the abatement goal, the cost could be as high as 1,100 billion euros, 1.4 percent of global GDP.

If, as some participants in the climate debate argue, the cost of reducing emissions could be an insurance policy against the potentially severe consequences of unchecked emissions in the future, it might be relevant to compare the costs with the global insurance industry's turnover (excluding life insurance)—some 3.3 percent of global GDP in 2005.

Cost-conscious regulation

Should regulators choose to step up current programs to reduce greenhouse gas emissions, they should bear in mind four types of measures to restrain costs:

1. Ensuring strict technical standards and rules for the energy efficiency of buildings and vehicles

2. Establishing stable long-term incentives to encourage power producers and industrial companies to develop and deploy greenhouse gas-efficient technologies

3. Providing sufficient incentives and support to improve the cost efficiency of selected key technologies, including carbon capture and storage

4. Ensuring that the potential in forestry and agriculture is addressed effectively, primarily in developing countries; such a system would need to be closely linked to their overall development agenda

Shifting business environment

For companies in the power sector and energy-intensive industries, heightened greenhouse gas regulation would mean a shift in the global business environment on the same order of magnitude as the one launched by the oil crisis of the 1970s. It would have a fundamental impact on key issues of business strategy, such as production economics, cost competitiveness, investment decisions, and the value of different types of assets. Companies in these industries would therefore be wise to think through the effects of different types of greenhouse gas regulation, strive to shape it, and position themselves accordingly.

No matter whether, how, or when countries around the globe act to reduce greenhouse gas emissions, policy makers and business leaders can benefit from a thorough understanding of the relative economics of different possible approaches to abatement, as well as their implications for business and the global economy.

About the Authors

Per-Anders Enkvist is an associate principal and Tomas Nauclér and Jerker Rosander are principals in McKinsey's Stockholm office.

The authors would like to thank Richard Duke, a project manager of the underlying research effort, as well as acknowledge the contributions of Malavika Jain, Thomas Koch, Enrico Villa, and Nick Zuo to this article.

Notes

1 Review of EU Emissions Trading Scheme, conducted by McKinsey on behalf of the EU Commission, was published in November 2005. Its findings reflect responses from 167 companies and 163 other institutions.

2 Growth in emissions is driven mainly by the increasing demand for energy and transport around the world and by the deforestation of tropical areas.

3 Launched in spring 2006, the study has been conducted as a joint effort with the Swedish utility Vattenfall. However, the views expressed here are ours alone, and we are solely responsible for any errors. The results of the study have been reviewed by an academic panel consisting of professors Dennis Anderson (Imperial College London), Lars Bergman (Stockholm School of Economics), and Steve Pacala, Robert Socolow, and Robert Williams (Princeton University).

4 Calculated as the annual additional operating cost (including depreciation) less potential cost savings (for example, from reduced energy consumption) divided by the amount of emissions avoided. This formula means that costs can be negative if the cost savings are considerable. Possible costs for implementing a system to realize the abatement approaches are not included.

5 Such as carbon dioxide, methane, nitrous oxide, and sulfur hexafluoride.

6 A technology for separating greenhouse gases from the combustion gases of fossil fuels and industrial processes and then storing the greenhouse gases in natural underground cavities.

7 As trees grow, they bind greenhouse gases. When they are cut down and burned, the greenhouse gases are released back into the atmosphere.

Site Map | Terms of Use | Updated: Privacy Policy | mckinsey.com

Copyright © 1992-2007 McKinsey & Company, Inc.

Preparing for a low-carbon future

Tackling carbon exposure is more than good environmental stewardship; it could also protect a company's share price in the near term and create a long-term competitive advantage.

Christoph Grobbel, Jiri Maly, and Michael Molitor

2004 Number 4


Although corporate liability for carbon emissions has been overshadowed by louder calls for governance reform, it has risen inexorably on the shareholder's agenda (Exhibit 1).1 Large institutional investors, such as Calpers and the pension funds of New York State and New York City, are pushing companies to report their carbon "footprint"—the total amount of carbon dioxide that they and their suppliers emit—and to define their risk exposure to regulations that limit emissions. The Carbon Disclosure Project,2 a group representing institutional investors managing $10 trillion in assets, has sent questionnaires to 500 of the world's largest companies (including airlines, automobile manufacturers, insurers, power generators, retailers, steelmakers, and technology companies) asking them to explain their emissions policies and strategies. The project then publicizes the response (or lack of one) for investors to note.

Chart: Under pressure

This intensifying level of scrutiny isn't simply a call for environmental stewardship, although that might play a role. Rather, it is born of concern that over the next 5 to 15 years the way a company manages its carbon exposure could create or destroy shareholder value. The companies with the most to lose, at least initially, are those whose production processes generate a lot of greenhouse gases, particularly carbon dioxide. Businesses (such as airlines, auto manufacturers, and logistics companies) that make or rely on products that generate carbon dioxide must also be wary (see sidebar, "Managing product emissions"). Even companies that fall into neither category must pay close attention. Rising input costs—for energy or transportation, say—will affect companies of every stripe, from retailers that consume energy in their stores to consumer product companies that design packaging, and investors will increasingly hold them responsible for managing emissions. Managers who fail to respond to calls for more transparency and better planning will face greater public censure or even charges of breach of duty, say shareholder activists. They might also find the share price of their companies discounted in capital markets.

The new pressure may come as a jolt to executives, many of whom are unsure how to respond in a climate of regulatory uncertainty. The United Nations' Kyoto Protocol, which requires industrialized countries to reduce greenhouse gas emissions to about 95 percent of their 1990 levels by 2012, went into force with Russia's ratification in late 2004. But several key players—particularly the United States and Australia—haven't signed on (Exhibit 2). In the absence of universal ratification, individual governments at the supranational, national, regional, and state levels are coming up with their own regulations on carbon emissions: the European Union's Emission Trading Scheme comes into force in January 2005, for example, and state and regional governments in Australia, Canada, Japan, the United States, and elsewhere are also setting new rules. The particulars differ, but the bottom line is the same: emitting carbon and other substances will become more expensive, and shareholders want to know how executives plan to manage these costs.

Chart: Kyoto holdouts

Although all companies will experience the consequences of increased regulation, the big emitters will be the first to feel the pressure. Companies in the cement, oil-refining, power, pulp and paper, and steel industries will likely soon be subject to cap-and-trade schemes3 in Europe, North America, and Japan—and, eventually, in the developing world—as countries and regions try to meet the goals of the Kyoto agreement. When programs come into force, executives in these industries will have to weigh the trade-offs of maintaining their current emissions, buying allowances and credits, or reducing their carbon output and selling their allotted credits. Understanding the cost of emissions in these industries will in turn help executives from others to identify areas in their own supply chains where costs are likely to rise. Companies in all industries, whether or not they emit carbon in their production processes or produce goods that emit carbon, should set up new tracking and reporting processes to keep shareholders informed. Many companies will also need to work with regulators to shape the rules and make them as clear as possible.

The economic impact

For big emitters, the direct costs of emission credits are relatively easy to understand: in a cap-and-trade scheme, companies that exceed their allotted level must purchase additional credits or allowances at open-market prices from their competitors.4 Companies thus have an incentive to cut their emissions, and the incentive grows if they reduce emissions below the cap, because they can then sell surplus credits to companies that are over the limit. Decreasing the need for credits—through smart investments in cleaner technology, for example—will thus become an important strategic consideration, as will using import barriers or other means to fend off competition from companies (often in less regulated countries) that have lower emission costs.

We studied the likely impact of regulation and emission costs on the economics of several carbon-intensive industries in Europe5 and found surprising differences among them—differences that are also likely to characterize other regions. Carbon regulation, for example, will raise costs for all European steel producers, but those that face greater competition from cheaper imports, such as makers of flat-steel products (used for car bodies), could suffer more than makers of long products (used in construction), which are less exposed to foreign substitutes. Cement manufacturers might actually benefit from carbon regulation: their emission costs will mostly be covered by allocated allowances, and since the threat of imports in cement is fairly low they will be able to pass on to customers any costs they do incur. Some cement producers could do even better by investing in a more carbon-efficient process that uses slag, a by-product of steel production. In fact, the value of slag is likely to rise owing to this demand, thereby helping to offset the cost of carbon regulation in the steel industry.

Oil refiners face a mixed prognosis. Reduced demand for common residual fuel oil (which is used to generate power in some parts of the world and emits more carbon dioxide than do other fuels, and far more than natural gas) should help keep down the price of heavy crude oil. That could benefit the more complex refiners, which can convert it into motor fuels. However, a drop in demand for petroleum would hurt the entire industry.

These dynamics show why companies in industries whose production processes emit a lot of carbon should compare their competitors' exposure to carbon caps with their own. As they do so, many will revisit their strategies. Some oil companies, for instance, are going to find that certain investments—such as updated refinery technology to convert cheaper, heavier crude oil into motor fuels—will begin to look attractive. Other types of companies will look hard at whether they can go on conducting business as usual: for example, steel mills using basic oxygen furnaces that emit high levels of carbon dioxide to produce flat and rolled products could be better off shutting down production and selling carbon credits.

For companies in all industries, the efforts of big emitters to comply with and thrive under cap-and-trade schemes will have a number of implications. One is that the price of energy, insurance,6 and carbon-intensive commodities such as steel, processed minerals, and paper is likely to rise as regulators impose caps on greenhouse gas emissions (Exhibit 3). Another is that executives could find that carbon regulation inspires new growth opportunities, which might arise in low-emission versions of familiar products (advanced diesel engines or natural-gas power generation, say). The opportunities could also involve emerging substitute technologies, such as carbon sequestration (removing emissions from the production process and then storing them underground or injecting them into oil and gas wells to improve yields) and advanced technologies that convert coal into cleaner-burning liquid or gas fuels. Some companies might consider changing their portfolios to sell products with a lower carbon footprint, though such analyses are complex. More greenhouse gases are emitted during the manufacturing processes of cars made of aluminum rather than steel, for example, but these cars, being lighter, burn less fuel and so generate less carbon dioxide over their lifetimes.

Chart: Caps ignite energy prices
Move to reduce emissions

Given the high probability that heavy carbon emitters, depending on where they operate, will sooner or later become subject to cap-and-trade regulations, and the intense interest of shareholder groups in the meantime, these companies should immediately try to cut emissions by taking "no-regrets" moves. Some are straightforward: fixing leaks, reducing waste, and keeping up with preventive maintenance. But before executives decide on any complex and long-term move, they will have to compare the cost of two alternatives—reducing emissions or buying more credits—by factoring the cost of carbon emissions, as a financial variable, into their capital-investment planning. Heavy emitters, like all other companies, will also need a sourcing strategy to manage the impact of carbon regulation on the cost of key inputs, such as electricity.

In addition, executives will have to understand where the emission boundaries fall within the value chains of their companies and how they can make choices that minimize their exposure to carbon-induced risk. An aluminum producer, for example, can reduce its own emissions by switching to processes that emit lower levels of greenhouse gases or use less electricity. It can also influence emissions further up the value chain by purchasing either electricity from a "green" power generator or the emission credits it needs from the market (thereby creating a demand for other companies to generate those credits) and by providing incentives to suppliers or even funding their investments in cleaner processes. The company might take these steps not out of altruism but because it could then label its aluminum "carbon reduced" or "carbon free." Eventually, consumers might demand carbon-reduced cars because banks and auto insurers, spurred by a desire to reduce the damage that climate change wreaks on their own portfolios, offered better terms for such vehicles.

Less heavy emitters will also want to evaluate the amount of carbon they emit and consume. In 2002 Colgate-Palmolive, for example, began estimating the emissions (mostly generated by purchased electricity) from its manufacturing and research facilities and asked a third party to verify the findings. It also redesigned its packaging to reduce the amount of fuel needed to transport finished products.

As a company works toward a sustainable approach to the carbon issue, it develops an internal culture and skills that help it meet regulations when they are implemented, thus potentially gaining a competitive advantage. In 2004 Shell Canada and its partners, for instance, won approval for expanding operations in the oil sands of Athabasca, in Alberta. The reason, in part, was that the company had already improved on environmental targets set by regulators and was more experienced than its competitors at communicating a project's environmental impact to community leaders and at involving them in its decisions.

Track and report financial risks

Most companies, regardless of their carbon footprint, will have difficulty responding to shareholders' calls for more transparency and accountability on carbon emissions, especially because reporting standards for carbon monitoring are not well defined. Almost every company above a certain size, in nearly every industry, must learn how to account for the quantity of carbon dioxide emitted from or consumed by its business.

Financial analysts, who have been calling for more transparency, are helping to develop global reporting standards to aid in the rating of companies. In Europe's utility sector, for example, several new variables make it possible to measure carbon emissions against production or revenue,7 although these variables are still new and their relationship to the more common financial metrics is untested. Other efforts to quantify the risk induced by carbon emissions include the investment guidelines that the finance initiative of the United Nations Environment Programme will publish in the summer of 2005 and the Goldman Sachs Energy Environmental and Social Index for leading oil companies. The index includes five measures of climate change8 and ranks companies accordingly, but it offers only a general link to corporate valuations. Ceres, a coalition of US companies, investor groups, and environmental organizations, uses a similar method to analyze oil refiners. These approaches highlight differences among companies, thereby helping to identify leaders and laggards, but have yet to quantify the connection between movement in the indexes and the long-term performance of a company's shares. Companies in heavy-emitting industries will probably be the first affected by standards for measuring carbon accountability. But executives from all industries should be involved in the development of these standards in order to ensure that they are efficient and that the accounting is logical.

Help shape regulations

Uncertainty about future regulations is the biggest risk in the carbon equation: executives need long-term assurances on credits and emission levels to factor them into plans for expensive capital investments. Both the Kyoto Protocol and the EU's Emission Trading Scheme set preliminary goals, but it is unclear what will happen thereafter.

Working to delay or derail regulations sends the wrong message to concerned shareholders and could leave management unprepared for inevitable changes in the regulatory environment and in the resulting industry economics. By helping to shape the regulations, executives can reduce the level of uncertainty and make the rules as clear and fair to their industries as possible. In Germany, for example, some chief executives in the power industry saw the Emission Trading Scheme as a threat to the financial health of their companies, which relied on coal and lignite to generate electricity. But by working with regulators, these executives won a four-year window of opportunity for transferring the allowances of the old plants to cleaner new ones, thus subsidizing their construction. Policy makers like the arrangement because the new coal plants emit less carbon dioxide than their predecessors, at a cost three to four times lower than that of heavily subsidized wind-power plants. Environmentalists like the almost 30 percent reduction in carbon dioxide emissions.

As heavy-emitting industries gird themselves to comply with cap-and-trade schemes, and as investor groups begin to pressure all big businesses to disclose their emission policies and strategies, companies in every industry must act preemptively rather than stonewalling or merely reacting to regulations. In this way, executives can show that they understand the risks from their companies' carbon footprint and are working to reduce the exposure.

Managing product emissions

Carbon regulations have so far focused mostly on the direct sources of emissions created when goods are produced or power is generated. But products—such as auto, airplane, and other engines—that emit carbon dioxide when they are used are also a big part of the carbon equation. Most of them are employed in the transportation sector, which, in addition to airlines and automotive companies, encompasses trucking, railroads, post and parcel services, forwarding and logistics, urban transit, and travel and tour operators (including rental-car fleets). All in all, this sector generates about 20 percent of the world's greenhouse gas emissions, and its share is growing more rapidly than those of other sectors. Since carbon-trading schemes for hundreds of millions of car owners would be difficult to implement and manage, regulation in this sector will probably focus on fuel-efficiency requirements and fleet reductions. New rules in California, for example, aim to reduce emissions from commercial fleets and other passenger vehicles by 30 percent as of 2017, and the United Kingdom bases taxes on corporate cars solely on their carbon dioxide emissions.

Executives in any sector (including agribusiness and forestry) whose product emissions are a concern will have to cope with regulations to reduce emissions from products and from the delivery of services. To meet fuel-efficiency product emission targets, for example, automobile manufacturers will need to reconsider their product mix and customer-segmentation plans and to invest in new automotive technologies. Licensing and partnerships will become increasingly important for acquiring new technology and developing products and revenue streams. Toyota Motor, for example, is licensing its Prius hybrid-engine technology to Ford Motor for a relatively small sport utility vehicle, the Escape, and Renault is supplying Nissan with diesel engines.

Airlines have fewer options. Aircraft engines are already very efficient, but airlines could reduce their emissions at airports by improving their aircraft-taxiing procedures and managing auxiliary power units more effectively. Even so, an expected rise in air traffic throughout the world, especially in Asia, will outweigh minor improvements of this kind as well as new aircraft designs. Airlines have thus far avoided carbon regulation, and in many cases jet fuel is taxed lightly or not at all, unlike fuel for cars and trains. But that free ride could end: the EU wants to include airlines in its Emission Trading Scheme after 2008.

Closer scrutiny should prompt companies in the transportation sector to work closely with regulators to shape the rules that will affect it. Auto manufacturers, for example, might want to seek tradable credits for any low-emission vehicles they produce, either to use against their own manufacturing emissions or to sell to other companies. And fleet operators, including big logistics companies such as FedEx and UPS, should seek to earn credits for running low-emission autos and trucks, thereby further increasing demand for low-carbon vehicles and generating even more credits for auto manufacturers.

Return to reference

About the Authors

Christoph Grobbel is a consultant in McKinsey's Cologne office, Jiri Maly is a principal in the Toronto office, and Michael Molitor is chief executive of the Carbon Management Group.

The authors wish to thank Richard Duke for his contributions to this article.

Notes

1 The corporate liability for carbon emissions may include a legal liability, given the possibility of more lawsuits such as the one filed in July 2004 by eight US states and New York City to force five electricity companies to reduce their emissions. This article, however, focuses on the financial risks of emissions.

2See www.cdproject.net.

3 For more details, see Enrique de Leyva and Per A. Lekander, "Climate change for Europe's utilities," The McKinsey Quarterly, 2003 Number 1, pp. 120–31, particularly the sidebar, "How does a cap-and-trade scheme work?"

4 In the EU's scheme, most companies will receive almost enough credits to cover their current emissions, but there will be a small shortfall to encourage reductions. These allowances are likely to decrease over time, so the incentive to invest in carbon-abatement technologies will become stronger.

5 The EU's Emission Trading Scheme targets five industries: cement, oil refining, power, pulp and paper, and steel. Elsewhere, regulations are likely to focus on these and other industries, including aluminum.

6 Insurance companies are concerned about rising losses related to climate change. The United Nations Environment Programme and the reinsurer Munich Re predict that losses from extreme weather events, such as floods and heat waves, will grow from $55 billion in 2003 to $300 billion in 2050.

7 Two gaining prominence are the carbon factor of the production portfolio and the revenue/profit exposure per carbon profile.

8 Greenhouse gas targets and performance, greenhouse gas levels relative to gross cash invested, activity inemission trading, change in greenhouse gas levels, and investment in renewable energy.


Making the most of the world's energy resources

Demand for energy is set to grow rapidly during the next 15 years—unless governments, businesses, and consumers take advantage of the many substantial, economically viable, and technologically proven opportunities to boost energy productivity.

Diana Farrell, Scott S. Nyquist, and Matthew C. Rogers

2007 Number 1


It isn't easy to be optimistic about energy resources these days. The supply of fossil fuels on the Earth, the number of rivers amenable to damming, the amount of arable land available to generate biomass, the willingness of citizens to accept the perceived risks of nuclear power—all of these have limits. And it isn't clear how quickly scientists can develop innovative alternatives.

Furthermore, a recent McKinsey Global Institute (MGI) analysis of the economic sectors most responsible for the end use of energy indicates that overall demand, which has increased by 1.6 percent a year for the past decade, is on track to grow by 2.2 percent annually over the next 15 years (see sidebar "Modeling energy demand").1 Developing countries such as China account for the largest part of this growth. Curbing demand for energy in the emerging world would mean asking its consumers to reduce their newfound expectations of comfort, convenience, and economic growth—an unacceptable proposition for them.

Is there an escape from the vice grip of finite supplies and surging demand? We believe there is. Both developed and developing economies could use energy more productively by reducing the raw-materials inputs required to produce a given level of energy use, increasing the quantity or quality of the economic output from a given set of energy inputs, or both. These approaches wouldn't call for reducing the benefits that energy's end users enjoy.

As part of a broader report on global energy markets, MGI has uncovered many opportunities to boost energy productivity beyond base-case levels. All are substantial, economically viable, and technologically proven.2 MGI identified large opportunities across all the sectors we studied, including residential use, industrial use, and power generation. In these and many other sectors, capturing the wide variety of opportunities for greater productivity—each boasting an internal rate of return (IRR) of at least 10 percent—could cut the growth in annual global energy demand, through 2020, to 0.6 percent, from the base case of 2.2 percent.

Market-distorting subsidies, information gaps, misaligned incentives, and other market inefficiencies now undermine energy productivity. Consumers often lack the information and capital they need to use energy more productively and tend to make comfort and convenience higher priorities. Manufacturers of consumer products such as the automobile often don't invest in energy efficiency because they cannot recoup the savings that consumers would enjoy. Businesses refrain from boosting energy productivity because energy costs are fragmented. And a range of policies—particularly subsidies—dampen price signals and give end users less incentive to become more efficient.

It would be far from easy to implement the remedies: removing policy distortions, making the price and usage of energy more transparent, and selectively deploying demand-side energy policies, such as building codes and efficiency standards for appliances. But if policy makers muster the political will to put incentives in place, and if businesses and consumers respond, the results will be dramatic. A 25 percent drop in overall consumption by 2020, relative to business-as-usual growth, is achievable. Because many of the opportunities lurk in emission-intensive areas (such as electricity use and power generation, as well as industrial use in developing countries) such a decline would bring about a corresponding 27 percent reduction in carbon dioxide emissions. (For a detailed analysis of the relative economics of available approaches to decreasing greenhouse gas emissions, see "A cost curve for greenhouse gas reduction," available late January.)

Why energy productivity matters

When wildcatters struck oil in the United States, the Caucasus, and the Middle East, cheap and seemingly limitless supplies encouraged its use in countless ways. The resulting new products and services and automation of processes stimulated economic growth, labor and capital productivity, and, of course, demand for energy. The oil crises of the 1970s awakened the world to the need for and possibility of constraints, and the policy changes, technological innovations, and consumer and business choices that followed shifted the global economy to a more energy-productive path. Today's surging demand calls for a renewed focus on energy productivity.

What does energy productivity mean?

MGI defines energy productivity as the ratio of value added to energy inputs. Like labor or capital productivity, energy productivity thus measures the output and quality of the goods and services generated with a given set of inputs. Today, it stands at $79 billion of GDP per quadrillion British thermal units (QBTUs).3

Energy prices, business practices, market forces, and government policies all influence energy productivity. Japan leads the world here thanks to consistently high energy prices and strict government energy efficiency standards based on the best practices of leading companies. Japanese gas- and coal-fired power plants are 70 percent more energy productive than Russian ones, and Japan's 2007 standards for room air conditioners are nearly 50 percent stricter than their Chinese counterparts. The Arab Gulf, by contrast, is among the least energy-productive parts of the world as a result of large, sustained energy subsidies and an energy-intensive growth model. Similarly, US cars are 15 percent less energy efficient than European ones in the same class, partly because European gasoline taxes are roughly seven times higher and partly because US regulatory exemptions have long helped automakers market SUVs as light trucks, which are subject to less stringent fuel-efficiency rules than passenger vehicles.

Economies can improve energy productivity in two ways:

  • They can generate a given level of energy-related benefits with fewer inputs by using energy less intensively (with smaller appliances, for example), using energy in a more technically efficient way (car engines that use less fuel, say), or changing the mix of fuel they use (for instance, by switching from wood-burning stoves to electric ranges powered by coal-generated electricity).
  • They can increase output more rapidly than demand for energy by changing the composition of economic activity. Energy productivity rises, for example, when growth shifts from more to less energy-intensive sectors—from steel, say, to services, or to higher value-added activities within services.
Since 1980 changes in input intensity, technology, the fuel mix, and economic activity have generated annual worldwide energy productivity improvements of roughly 1 percent a year—a pace that should continue over the next decade and a half in the absence of significant changes in the way energy regulations and markets operate. The pace will continue to be most rapid in emerging markets, particularly China, simply because they start from very low energy productivity levels that provide huge opportunities for improvement (Exhibit 1). The rapid construction of new urban housing, for example, should help the country boost its residential energy productivity by 2 percent a year.


How energy productivity is related to global demand

Unfortunately, the gain of 1 percent a year in energy productivity over the past decade has been outstripped by global energy demand, which has risen by 1.6 percent a year. In the near future, that demand is likely to grow even faster—by 2.2 percent a year in MGI's base-case scenario. Growth of this magnitude would increase global energy demand to 610 QBTUs in 2020, from 422 QBTUs in 2003 (see sidebar "Sources and uses of energy today").

That growth comes mainly from rapidly developing emerging markets, which together are projected to generate nearly 80 percent of the growth in world energy demand in our base case through 2020 (Exhibit 2). China, with six of the ten sectors likely to grow most quickly, represents 32 percent of world growth. In contrast, India's growth in energy demand represents just 4 percent of the world total through 2020. One explanation for the lower Indian figure is that rapid urbanization should lead to a significant change in the mix of fuels residential consumers use—from relatively inefficient biomass (wood and dung, which today meet roughly 80 percent of India's residential energy needs) to electricity.

Although these projections rest on bottom-up forecasts of demand in dozens of microeconomic sectors, they are subject to considerable uncertainty. In particular, the rate of global GDP growth (3.2 percent in MGI's base-case scenario) will have a major impact on the rate of growth in energy demand.4 Our analysis indicates that GDP growth, particularly in developing economies, will drive the biggest swings in global energy demand. Higher than expected GDP growth would boost growth in energy demand to 2.7 percent a year (an increase in global energy demand of roughly 50 QBTUs by 2020 over the base case), while slower GDP growth would reduce demand (from the base level) by around 50 QBTUs.5

Sustained oil prices of $70 a barrel would cut global energy demand much less—by roughly seven QBTUs. A key explanation for this modest reduction is a complex brew of market failures, market-distorting public policies, and information and capital constraints. In addition, changes in relative prices induce energy users to switch to other fuels—from gasoline to biofuels for transportation, from natural gas to coal for generating electricity—but don't reduce overall energy demand as significantly. And high oil prices boost GDP and energy demand in the Arab Gulf region, where energy productivity is low, thereby partially offsetting lower GDP and energy-demand growth in more efficient, oil-importing regions.

Boosting energy productivity

All this should make clear the inextricable relationship between energy demand and energy productivity: the higher the productivity, the lower the demand at any level of GDP. But to make energy productivity grow more quickly, a variety of targeted interventions will be needed.

Seeking out the opportunities

Conventional technologies with an IRR of 10 percent or more offer tremendous opportunities for improving productivity in a broad range of end-use areas. Capturing these opportunities would reduce growth in global energy demand to below 1 percent annually (from 2.2 percent in the base-case scenario) while shrinking projected 2020 end-use demand—perhaps 610 QBTUs—by somewhere between 116 and 173 QBTUs, some 19 to 28 percent of total energy demand (Exhibit 3). To put these figures in context, consider the fact that if nonhydroelectric renewable power sources increased their share of global power generation from 2 percent today to 5 percent in 2020, and if biofuels boosted their share of the transportation fuel market to 10 percent, from 1 percent, all of these sources would contribute only about 30 QBTUs to the world's energy supply in 2020. What's more, rather than requiring subsidies, energy-productivity opportunities provide a positive rate of return, freeing up resources that could be consumed elsewhere or invested for faster growth. We consider some of the most promising opportunities below.

Residential heating and lighting. With 25 percent of global energy demand, residential property represents the largest energy-use segment. Key opportunities include fitting out new homes with tight building shells, including chemically treated windows to reduce the amount of cold that comes in during the winter and the amount of heat that comes in during the summer; high-grade insulation; compact fluorescent lighting; and solar water heaters. In addition, higher efficiency standards for appliances and reductions in standby power requirements yield positive returns and simultaneously cut demand for energy. We estimate that these and other technologies in lighting, heating, and cooling could slow growth in residential energy demand to 0.5 percent a year, from 1.4 percent, and reduce 2020 energy demand by 15 QBTUs (or 3 percent of the total).

Electricity generation and distribution. Another large opportunity would come from reducing the losses that arise in generating and distributing electricity. In 2003, 129 QBTUs (30 percent of global energy use) were needed to generate 57 QBTUs of delivered electricity—meaning that generation and distribution consumed nearly 60 percent of all energy inputs. This implies a conversion rate (energy delivered divided by energy used) of around 40 percent. Some of the losses are unavoidable, but even today conversion rates range from under 30 percent in older coal plants to more than 50 percent in newer gas ones. We estimate that new technologies, such as advanced combined-cycle gas turbines, with an IRR of 10 percent or more, could reduce demand by 18 QBTUs as of 2020.

By then, the expansion of China's power sector will represent 13 percent of the growth in global energy demand. If China meets it by building new, high-efficiency coal plants, the country's overall energy demand will fall by 7 QBTUs—more than 1 percent of the global total—by 2020.

Steel, refining, and other industrial sectors. There are enormous opportunities to improve energy efficiency by replacing the least efficient tail of production with current technologies and by implementing currently economical energy-saving upgrades. These opportunities could reduce global energy demand roughly 65 QBTUs by 2020.

In the US steel industry, for instance, realizing a large number of small opportunities, such as expanding cogeneration and improving recuperative burners,6 would allow steel mills to cut their demand for energy by about 30 percent. The opportunity in the developing world's steel mills, which are some 20 percent less efficient than their US counterparts and could be maintained more efficiently thanks to less expensive labor, is even larger.

Similarly, recent demonstration projects in US petroleum refineries have highlighted numerous opportunities with a payback of one year or less—opportunities that taken together would raise the sector's energy productivity by 12 percent.7 As with steel, the opportunities in developing countries should be larger because their refineries are relatively inefficient.

Paper manufacturers can boost their energy productivity by introducing equipment such as extended nip presses, which extract an additional 5 to 7 percent of water from intermediate products, thereby reducing the load on relatively less energy-efficient dryers. Cement makers can save energy by fitting out their traditional ball mills (used to grind materials such as limestone) with high-pressure roller presses or by replacing those mills with more modern horizontal roller mills.

Correcting market failures

In view of today's high oil prices, why haven't companies and consumers already seized the opportunities? The answer is that systematic market failures involving consumers, businesses, and governments dampen the demand response to changes in price. Any effort to boost energy productivity must take these issues into account.

  • Consumers, information, and capital. Most consumers lack information about the range of energy productivity improvements available to them, even though exploiting these improvements would serve their economic interests. Furthermore, to capitalize on energy productivity opportunities, consumers must often make up-front capital investments for which they have neither the funds nor the desire. Another issue, particularly in developing countries, is the fact that energy savings are often highly fragmented and their impact on household expenditures murky. As a result, the benefits of greater energy productivity are often obscured by the consumer's focus on using energy for comfort, convenience, style, and health or safety. And since few consumers are willing to pay now for energy savings in the future, suppliers of energy-consuming products (such as cars and appliances) have less incentive to develop, produce, or market energy-efficient technologies and features.
  • The relative unimportance of energy costs to business. Total US energy costs now represent less than 10 percent of the value of the output in all nonenergy sectors—indeed, less than 5 percent for most economic activities. Energy efficiency is thus typically a minor consideration, at most, when businesses invest in equipment such as automated- manufacturing tools or IT hardware. Many companies require a payback of three years or less (corresponding to an IRR of more than 30 percent) for capital expenditures to reduce energy consumption.
  • Governments and subsidies. Energy productivity is systematically undermined by government policies. For starters, many developing-world industries that transform energy or use it intensively are state owned, which often reduces the financial incentives to improve energy productivity. What's more, at least 20 percent of current global energy demand is subsidized or priced in a nonmarginal way, and both practices reduce or eliminate incentives to use energy as productively as possible. These energy-distorting policies include fuel subsidies in oil-producing countries in the Middle East and elsewhere, a lack of metering for the gas used in Russia's homes (setting energy's marginal cost at zero), and widespread energy subsidies for state-owned enterprises. Not surprisingly, energy efficiency in these areas lags behind global best practice dramatically.
The first step for governments hoping to solve these problems is to remove policies, such as subsidies, that discourage energy productivity. Governments should also look for sector-specific opportunities to promote it. Building codes and appliance-efficiency standards, for example, can help overcome the information barriers that inhibit many consumers from installing more efficient heating and lighting. Codes and standards are also helpful in dampening the impact of an agency problem in the construction industry: builders of offices, apartments, and homes often have little incentive to focus on energy efficiency, because the potential occupants may be reluctant to spend more now for a building that promises energy savings in the future.

Innovative companies also have a role to play in ameliorating market failures. Consider, for example, a general problem: energy users implicitly place extremely high discount rates on investments in fuel-efficient technologies, thereby limiting their adoption. Creative sales terms, perhaps developed through collaborations between utilities and the companies that sell the relevant technologies, could bridge the time gap and dampen the impact of high discount rates.

The right policies are likely to vary by region. Average fuel economy targets would have a faster impact in countries such as China, where new vehicles purchased over the next 15 years will represent most of the country's stock of automobiles. By contrast, in the United States, where the stock of vehicles will turn over more slowly, higher gasoline taxes would create broader incentives for existing car owners to use private cars less and public transport more and to move closer to the workplace.

The world faces many problems whose scope and complexity make them virtually intractable, but energy doesn't have to be one of them. If leaders muster the political will to eliminate market inefficiencies, companies and consumers will seize attractive energy productivity opportunities and create a brighter future.

Modeling energy demand

The energy demand analysis undertaken by MGI and McKinsey's global energy and materials practice diverged from conventional approaches in two ways. First, we made end use the foundation of our analysis and therefore allocated the power sector's energy consumption and losses to end-use segments instead of following the standard distinction between "primary" and "delivered" energy demand. Our approach helped us to arrive at a single figure for global demand, while capturing the full range of behavioral and policy factors influencing demand in each end-use segment.

Second, we employed a microeconomic perspective. The more common macroeconomic approach, which many energy analysts use, involves pairing historical year-on-year GDP growth figures with the corresponding numbers for energy demand growth at both the national and fuel level—for example, oil demand in Japan—and then finding the long-term correlations. MGI's microeconomic approach, by contrast, is based on the fact that global energy demand is really nothing more than the sum of demand in hundreds of microeconomic sectors, such as road transportation in China and residential energy consumption in the United States. We covered nearly 60 percent of global energy demand by conducting detailed case studies of nine microeconomic sectors1 and used extrapolation techniques for the remainder.

In each sector, we broke down energy demand into its key components: demand for energy services (for instance, how many refrigerators or cars?), the intensity of usage (how big are the energy-consuming devices and how often are they used?), the efficiency of usage (say, what gas mileage or how many kilowatt-hours per cubic meter?), and the fuel mix (for example, how much gasoline or diesel?). The outcomes for any sector vary from country to country because of different development levels, urbanization rates, and policy environments, among other factors.

Finally, we developed dynamic, forward-looking scenarios that model the way these factors might respond to different price and policy environments. By aggregating sector-level insights into a global end-use model for energy demand, we parsed current and potential future demand by sector (exhibit), country, fuel, and region.

Return to reference

Notes

1 MGI has nearly 15 years of experience applying this methodology to such diverse areas as productivity, offshoring, foreign direct investment, and capital markets.

 

Sources and uses of energy today

In 2003 the world used 422 quadrillion British thermal units of energy. Petroleum products met a third of this demand (about 76 million barrels a day, or 145 QBTUs annually); coal and natural gas, 100 and 90 QBTUs, respectively. The remainder was split among many fuels, including biomass.

Consumers (as opposed to industrial users) accounted for more than 50 percent of total energy demand and for 60 percent of demand in the developed world (exhibit). On the national and regional level, the largest energy consumers are the United States, with 92 QBTUs (22 percent of the global total); Europe, with 86 QBTUs (20 percent); and China, with 60 QBTUs (14 percent). The sectors that now consume the largest amounts of energy are US road transport (5.4 percent of global energy demand), residential heating and lighting in China and the United States (4.0 and 4.5 percent, respectively), and US commercial buildings1 (3.5 percent).

Return to reference

Notes

1 Commercial buildings are nonresidential and nonindustrial. Typical examples include retailing and office real estate, and common energy applications include heating, operating appliances, and lighting.

About the Authors

Diana Farrell is director of the McKinsey Global Institute, Scott Nyquist is a director in the Houston office, and Matt Rogers is a director in the San Francisco office.

The authors would like to acknowledge the contributions of Pedro Haas, Jaana Remes, Jaeson Rosenfeld, and Jonathan Woetzel to this article.

Notes

1 MGI analyzed the residential, commercial, industrial, transportation, and energy generation and refining sectors, with an emphasis on China, the European Union, and the United States. For details, see MGI's full report, Productivity of Growing Global Energy Demand: A Microeconomic Perspective, November 2006, available free of charge online.

2 World energy productivity is currently on track to increase by 1 percent a year through 2020 as a result of shifts to services (which are less energy intensive than manufacturing), higher-value products, and more efficient technologies.

3 Energy productivity is the inverse of the energy intensity of GDP (the ratio of energy inputs to GDP), currently 12,600 BTUs of energy consumed per dollar of output produced. While both MGI's productivity metric and the more standard BTU-per-dollar-of-output one are useful diagnostic tools, placing GDP in the numerator heightens the emphasis on the benefits of efficiently boosting growth in output.

4 MGI's global growth forecast is approximately 0.5 percent higher across all end-use sectors than the corresponding projections of the International Energy Agency World Energy Outlook 2004. The sources of the additional growth we project are more rapid industrial expansion in China and faster overall growth in the Middle East and in middle-income Europe.

5 Our model's assumptions of high and low GDP growth rest on growth that would be two percentage points above and below the forecast base-case rates in China and India, one percentage point above and below the forecast base-case rates in other emerging markets, and half a percentage point above and below the forecast base-case rates in developed countries.

6 Devices that control the loss (in the form of flue gases) of the heat that goes into the high-temperature furnaces used in steelmaking. Without a recuperative burner, a steel manufacturer can lose up to 50 percent of the heat it puts into them.

7 One such demonstration project is the effort (cosponsored by the US Department of Energy) at Equilon Enterprises' Martinez plant, in northern California.

29.1.07

The Growth of Green Business: If a new strategy, product, or technology boosts profitability, companies not only sit up and take notice; they embrace it with open arms.


The Growth of Green Business

Hemispheres, 22 January 2007 - While businesses may be tempted to adopt environmentally friendly practices for benevolent reasons—sustaining the environment, promoting community goodwill—the big incentive is the extra green it puts in their wallets.

Money talks … especially in business.

If a new strategy, product, or technology boosts profitability, companies not only sit up and take notice; they embrace it with open arms.

That's why more and more U.S. and international companies are going green in their workplaces, their day-to-day operations, their products and services, and their business and supplier relationships.

"Going green is no longer just about protecting the environment or even providing a healthier and more productive workplace for employees," says Peter J. Miscovich, a principal within Deloitte Consulting LLP. "Green is also about improving the bottom line. Thus, corporations will drive sustainable practices into the mainstream, yielding tremendous environmental and social benefits while generating increased corporate profits and shareholder value."

Every company that adopts green policies becomes a change agent, because those policies affect and educate everyone who comes into contact with that firm—employees, suppliers, technology providers, clients, and customers. People touched by that greenfocused company will, in turn, carry their newfound knowledge about sustainability into their private lives, workplaces, and communities.

Green Workplaces
An increasing number of companies are choosing green workplaces because they provide such bottom-line benefits as higher work force productivity, greater attraction and retention of skilled workers, and lower overhead costs, including electric and heating and air-conditioning bills.

Citigroup owns and leases more than 13,000 properties in more than 100 countries. The company has committed to reducing greenhouse gas emissions from its buildings by 10 percent by 2011. Citigroup also is investigating what levels of renovation are necessary to earn Energy Star and LEED (Leadership in Energy and Environmental Design) ratings for its existing buildings in the U.S., and it has established a LEED-Silver rating as a target for its new office and operation-center facilities worldwide.

Citigroup has 300,000 employees around the world. "Our experience is that employees care tremendously about green issues," says Pamela Flaherty, senior executive vice president of Citigroup's global community relations.

"The way they see that a company is serious about caring for the environment is through their workplace. They may know about the company's other green policies, but those policies are not part of employees' everyday lives. When they see the company implementing green policies in their workplace, however, they know the company is serious about its commitment.

"Young people in particular are very interested in a company's corporate citizenship and environmental responsibilities," Flaherty continues. "We've also seen that many of our younger bankers are interested in working with clients on green issues. Thus, green has become a huge recruiting tool for attracting the best and brightest people."

Corporate headquarters have gotten the most media coverage, but sustainability is applicable beyond white-collar workplaces. These policies benefit a variety of blue-collar workplaces too.

Toyota Logistics Services' new 85-acre Port of Portland vehicle distribution center in Portland, Oregon—which serves the company's import vehicle processing and logistics functions—has earned a U.S. Green Building Council LEEDGold rating for sustainability.

"We integrated a wide variety of green design, materials, and technologies into every aspect of the buildings and site," says Bob Bonney, the executive vice president of MNB Architects/Engineers of Portland, which designed the project.

The vehicle distribution center features a 6.7-acre riverfront greenway, Energy Star roofs, natural daylighting and outdoor views for 96 percent of the buildings' interior space, and occupancy sensors, which automatically turn off lights in unoccupied spaces. "We used green building materials like zero-VOC [Volatile Organic Compound] composite wood and low-VOC adhesives, sealants, paints, and carpet that don't off-gas toxins like standard building materials do," Bonney says.

Day-to-Day Operations
As companies embrace the benefits of green buildings, they're discovering that sustainable business practices in their daily operations bring many additional benefits: a stronger bottom line, a more satisfied work force, and greater community goodwill.

India-based Taj Hotels, which has more than 50 luxury hotels and resorts around the world, has instituted a corporate environmental policy—Eco Taj—that addresses many aspects such as conserving energy and water, purchasing eco-products, and minimizing waste.

In London, Taj's 51 Buckingham Gate hotel near Buckingham Palace has reduced energy consumption by more than 22 percent, cut natural gas consumption by more than 32 percent, and lowered water usage and costs by 25 percent since 2005. The hotel also recycles a variety of materials, including coat hangers, paper and cardboard, glass, and food containers.

"We don't buy anything that comes in plastic," says resident manager Paul Brackley. "Plastic gives off toxic fumes, and it's awful for landfill. We look for everything that can be recycled, and we look for relationships with suppliers that can buy into our policies."

Wal-Mart, the largest retailer in the world, is adopting green practices, which will have a significant impact globally. Its year-old, experimental green supercenters outside Dallas and Denver, for example, are testing a wide variety of sustainable design strategies, materials, and technologies for use in new and existing stores around the world. Wal-Mart plans to increase its fleet efficiency by 25 percent over the next three years and double it within 10 years. It is investing $500 million annually in technologies that will reduce greenhouse gases at existing stores by 20 percent over the next seven years.

Wal-Mart's long-term environmental goals are to use 100 percent renewable energy, to create zero waste, and to sell products that sustain natural resources and the environment. "We are a large company," CEO Lee Scott said in his October 2005 "Twenty First Century Leadership" presentation to employees.

"For Wal-Mart to be successful and continue to grow, we must operate in a world that is healthy and successful."

Products and Technologies
Around the world, farsighted companies are creating new green products and technologies. "Green is going to be the industry of the 21st century," says Thomas L. Friedman, the influential New York Times columnist and author of the best-selling book The World Is Flat.

United Technologies Corporation (UTC) certainly agrees. The company's hydrofuel-cell bus, for example, helps to reduce air pollution and a municipality's energy costs, and it educates those who use or see the buses about the practicality of alternative-fuel vehicles.

UTC also is developing technologies that reduce a building's energy consumption and costs. UTC's Otis Gen2 Elevators, for example, not only use 70 percent less energy than comparable models 10 years ago, but also generate energy that can be used to power building systems, a significant benefit for building owners and the environment.

The European Union is rapidly upgrading its environmental standards, creating many new opportunities for companies. Finland's Proventia Group and its subsidiaries produce machines that cut, separate, and recycle reusable components in television sets and computer monitors, such as leaded and unleaded glass.

With the mainstreaming of green buildings, other companies are creating - and profiting from - the growing market demand for reasonably priced, environmentally responsible construction materials. Chinese companies have developed porous pavement bricks that allow rainwater to percolate down through the pavement into the ground and underground aquifers, thereby replenishing water supplies while reducing stormwater runoff and the threat of flooding.

Dow BioProducts (a subsidiary of The Dow Chemical Company) manufactures strawboard (rather than formaldehydelaced particle board) that can be used for cupboards and desks. Bio-Based Systems of Rogers, Arkansas, has created an effective soybean-based foam insulation to replace standard chemical-laden insulation.

Australia's TecEco Pty. Ltd. has created Eco-Cement, made of reactive magnesia and industrial byproducts and requiring lower temperatures and less energy to produce than standard cement. Equally impressive, although standard concrete generates about 10 percent of the world's carbon dioxide emissions, Eco-Cement absorbs (sequesters) carbon dioxide.

Business and Supplier Relationships
As companies reap the many benefits of green, something interesting happens. They begin insisting that suppliers and business partners adopt green policies, too.

Wal-Mart is creating a program that gives preference to suppliers who aggressively reduce their greenhouse gas emissions. Wal-Mart also is working with its suppliers to create less packaging overall, increase the recycling of packaging, and increase the use of recycled materials.

Bank of America is acting as a green agent in many ways. Its Bank of America Tower, now under construction in Manhattan, is on target to earn a LEEDPlatinum rating. That effort affects every professional, contractor, and supplier on the project. Bank of America requires its hundreds of vendors to comply with its environmental standards. All paper suppliers must provide independent, third-party certification of their sustainable forestry practices for all forests they own or manage. In addition, Bank of America reduced its paper usage by 32 percent between 2000 and 2005, even though its customer base grew by 24 percent. "We are also recycling 30,000 tons of paper a year," says Mark S. Nicholls, senior vice president of Bank of America's corporate workplace.

Leading corporations are forming organizations with strong sustainable goals. More than 180 international companies have joined the World Business Council for Sustainable Development based in Geneva, Switzerland, an organization committed to environmentally responsible economic growth. One current council initiative will identify practical strategies to construct buildings that consume "zero net energy."

The three Ps—People, Profits, and the Planet—will all benefit from this worldwide change in corporate attitudes about sustainability and the environment.

"I think that over the next five to 10 years, green practices will become embedded in how companies conduct all of their business," says Citigroup's Flaherty. "Green practices will be the standard way that we address the environmental and human impact of building development and renovation and the standard way we interact with our clients, our employees, and our suppliers."

That optimism may be the best evidence that the growth of green policies is rooted in a burgeoning bottom line.

Charles Lockwood is an environmental and real estate consultant based in Southern California and New York City.

Canada: $300 million investment over four years to encourage the energy efficient construction and retrofitting of homes, buildings, and industrial processes


$300M for building energy efficiency

GLOBE-Net, 22 January 2007 - A third component of the federal government's ecoENERGY program has been revealed with the announcement of a $300 million investment over four years to encourage the energy efficient construction and retrofitting of homes, buildings, and industrial processes.

Minister of Natural Resources Gary Lunn made the announcement at the Metro Home Show in Toronto, repeating his previous statement that "the largest untapped source of energy is the energy we waste."

According to Natural Resources Canada, the more than 13 million homes and 380,000 buildings in the country use 30 percent of our energy supply and generate the same percentage of our national greenhouse gas emissions.

The ecoENERGY Efficiency Initiative is made up of three components:

  • A $220-million ecoENERGY Retrofit program to offer homeowners, smaller businesses, and other organizations support and information to retrofit their homes, buildings and industrial processes.
Under the program, homeowners who invest in an energy audit and energy efficiency improvements to their home may receive a payment of up to $5,000. The government expects the Retrofit program to result in efficiency upgrades for around 140,000 Canadian households and around 800 smaller organizations. For homeowners, the average grant is expected to be more than $1,000 and to yield an average 30 percent reduction in energy use and costs.
  • The $60-million ecoENERGY for Buildings and Houses fund will provide ancillary support to encourage energy efficient construction.
The program will invest in new design tools to increase awareness of best practices and new technologies in the building sector. House and building energy rating and labelling systems will also be developed. The federal government also will encourage provincial and territorial governments to adopt more stringent building energy codes.
  • The $20-million ecoENERGY for Industry program will be put towards the exchange of best practices information and training to improve energy efficiency in the industrial sector. The government will also share the costs of assessments to identify energy efficiency investments.
Program details, including information about how to apply for grants, are to be available when the program starts in April 2007. A new ecoEnergy website has been created to provide details on this latest series of announcements and policies. Energy efficiency was also targeted with amendments to the Energy Efficiency Act proposed in the Clean Air Act last fall. The legislation will set minimum energy performance standards for a series of new products, including traffic signals, commercial boilers, and large air conditioners. Existing standards for products including dishwashers, refrigerators, and gas furnaces, will be made more stringent.

Other ecoEnergy initiatives announced over the past week include a $230 million fund to promote the development and demonstration of clean-energy technologies, including clean coal and carbon capture

Also announced were $1.5 billion in incentives over 14 years to support renewable energy technologies such as wind, solar, biomass, geothermal, small hydro and ocean energy.

Forest sector and NGOs warn over unchecked biofuels growth


Forest sector and NGOs warn over unchecked biofuels growth

EurActiv.com, 24 January 2007 - Increasing demands are being placed on forests worldwide as competition between traditional wood-use sectors and bio-energy heats up, NGOs and industry warn.

Background

Demand for wood is increasing as bio-energy continues to receive attention as a 'carbon-neutral' energy source that can reduce Europe's external energy depence. The Commission's latest policy initiative in the area, part of the energy and climate-change package of 10 January 2007, proposed that 10% of EU transport fuel should come from biofuels by 2020.

The Commission has promised to focus on second-generation biofuels produced from sources such as straw, timber, woodchips or manure. These are believed to be superior to the current 'first generation', made from crops such as sugar beet and rapeseed (see Commission public consultation on biofuels). The forest-based sector in Europe employs around 3.5 million people and has an annual turnover of some €400 billion.

In his State of the Union address on 24 January, US President George Bush , said he intends to move towards greater use of biofuels: "We must continue investing in new methods of producing ethanol using everything from wood chips to grasses, to agricultural wastes," he said.

"Let us build on the work we have done and reduce gasoline usage in the United States by 20% in the next 10 years - when we do that, we will have cut our total imports by the equivalent of three-quarters of all the oil we now import from the Middle East."

Issues

The capability of European forests to meet both growing demand from biofuels and the more traditional uses of wood such as timber, pulp and paper came under scrutiny at a workshop organised by the United Nations and forest-based industry organisations on 11-12 January in Geneva.

Over one hundred particpants in the workshop noted with satisfaction that, despite increasing demand for wood, forest growth in Europe still far exceeds the volume of wood harvested. The increase in forest volume offers more habitats for biodiversity, a wide array of timber and offers employment opportunities, the participants agreed.

However, they warned that the intensified use of forests may have some unwanted side-effects:

  • Forests help to protect soil from erosion, and play an important role in the water cycle and in water quality. However, intensive logging may impair these functions;
  • more intensively used forests may pose a problem for biological diversity. Tree species composition may be less varied, as choices concentrate on fast-growing species, leading to a reduction of genetic diversity;
  • increased demand may mean that the growth of food and the provision of other non-wood goods and services on lands will be less attractive, and;
  • increased extraction of trees may lead to a risk of nutrient imbalance.
In order to use wood resources sustainably in the future, the workshop recommended that governments, in cooperation with stakeholders, introduce comprehensive policies for the forest sector, rural development and energy while at the same time ensuring co-ordination of these policies with other sectors.

Positions

The challenge posed for Europe's forest sector was reflected by Bernard de Galembert, Forest Director at CEPI , who said: "Since traditional use of wood in Europe, notably by the pulp and paper industry, continues to expand as well, the competition between wood for bio-energy and for traditional wood processing industry is an increasing challenge."

In an open letter to the EU, Latin American NGOs criticised the growing use of biofuels as an aggravating cause of global warming, saying that it would come at the expense of the South.

"It is most unlikely that Europe will ever achieve self-sufficiency in the production of biofuel from national production of energy crops and therefore it is very possible that this will be done at the expense of lands on which the food sovereignty of our countries depend," the group said.

"While Europeans maintain their lifestyle based on automobile culture, the population of Southern countries will have less and less land for food. We will have to base our diet on imported food, possibly from Europe.

"In other cases, energy crops will be grown in Latin America ... at the expense of our natural ecosystems. it is a fact that monoculture soybean plantations are one of the main causes of the destruction of the rainforest in Argentina, of the Amazon rainforest in Brazil and Bolivia and of the Mata Atlântica in Brazil and Paraguay."

Latest & next steps

  • Early 2007 :Commission due to produce a communication on "Innovative and sustainable forest-based industries in the EU"

Wind Power Capacity in U.S. Jumped 27% in 2006


Wind Power Capacity in U.S. Jumped 27% in 2006

GreenBiz.com, 24 January 2007 - Wind power generating capacity increased by 27 percent in 2006 and is expected to increase an additional 26 percent in 2007, proving wind is now a mainstream option for new power generation, according to a market forecast released today by the American Wind Energy Association (AWEA).

Wind's exponential growth reflects the nation's increasing demand for clean, safe and domestic energy, and continues to attract both private and public sources of capital.

"iPods, flat screen televisions and other highly sought technologies are creating a demand for electricity that is beginning to eclipse our current supply. Wind is a proven, cost-effective source of energy that also alleviates global warming and enhances our nation's energy security," said AWEA Executive Director Randall Swisher.

The U.S. wind energy industry installed 2,454 megawatts (MW) of new generating capacity in 2006, an investment of approximately $4 billion, billing wind as one of the largest sources of new power generation in the country -- second only to natural gas -- for the second year in a row. New wind farms boosted cumulative U.S. installed wind energy capacity by 27 percent to 11,603 MW, well above the 10,000-MW milestone reached in August 2006. One megawatt of wind power produces enough electricity to serve 250 to 300 homes on average each day.

Wind energy facilities currently installed in the U.S. will produce an estimated 31 billion kilowatt-hours annually or enough electricity to serve 2.9 million American homes. This 100 percent clean source of electricity will displace approximately 23 million tons of carbon dioxide -- the leading greenhouse gas -- each year, which would otherwise be emitted by traditional energy sources such as coal, natural gas, oil and other sources.

Wind power has also attracted the support of state and federal government legislatures. The U.S. Congress recently extended the federal production tax credit (PTC) through December 2008 to further expand the number of wind farms throughout the U.S. Based on the success of the PTC to date, AWEA is calling for extending the provision an additional five years.

"The industry has demonstrated a generous return on the investment of both private and public investment in wind," said Swisher. "Extending the PTC five years will significantly increase the progress America is making in expanding its use of new forms of energy when they've never been needed more."

The industry outlook also finds:

  • Texas accounted for nearly a third of the new wind power installed in 2006, taking over the lead from California in cumulative installed capacity. Texas hosts the world's single largest operating wind farm, the 735-MW Horse Hollow Wind Energy Center, located in Nolan and Taylor counties.
  • Much of the new wind equipment in 2006 was produced in new manufacturing facilities in Iowa, Minnesota, and Pennsylvania. Additional announcements are expected in 2007. Investment in manufacturing capability signals confidence in the market and lays the groundwork for expanded growth capability.
  • New utility-scale turbines were installed in a total of 20 states across the country, from Maine to New Mexico to Alaska.
  • The top five states in new installations were Texas (774 MW), Washington (428 MW), California (212 MW), New York (185 MW) and Minnesota (150 MW).

AWEA gathers the data for its analysis each January by contacting wind farm developers and turbine manufacturers around the country.

A state-by-state listing of existing and proposed wind energy projects is available on
AWEA's Web site .

Emerging nations seek clean fuel technology: Booming emerging economies need help to obtain cleaner technologies because attempts to tackle climate change are being outstripped by the pace of their economic development


Emerging nations seek clean fuel technology

AFP, 26 January 2007 - Booming emerging economies like China and India need help to obtain cleaner technologies because attempts to tackle climate change are being outstripped by the pace of their economic development, officials said at the World Economic Forum.

Economic planning chiefs from India and China said Wednesday that they were implementing cuts on greenhouse gas emissions from industry, transport and housing which many scientists blame for global warming, by promoting cleaner energy use.

But they are reluctant to submit to compulsory limits that might hamper industry in the short term while rich nations fail to meet the emissions targets they set themselves.

"The industralised countries have not met the obligations they took on in the Kyoto Protocol," said Montek Ahluwalia, Deputy Chairman of the Planning Commission of India.

"And not all industralised countries joined them," he added, referring to the United States. "It's quite clear that business as usual doesn't work."

Industrialised countries are trying to get developing nations to join the next round of "post-Kyoto" mandatory emissions limits from 2012. Poor nations were left out of the current curbs because they might hamper development.

Zhang Xiaoqiang, Vice-Chairman of China's National Development and Reform Commission, insisted that the Asian giant was cutting emissions and targeting further cuts.

However, China's economic growth rate means that overall emissions there are still rising.

Zhang highlighted cement and steel production in China which pollutes about 40 percent more than technologies used in the West, while buildings were half as energy efficient as in Europe.

"We need to try to develop this but we want technology to save energy. We want to strengthen cooperation with developed countries," Zhang said, calling for a "know-how exchange".

Jacques Aigrain, chief executive of one of the world's largest reinsurance firms, SwissRe, said highly populated and growing countries like China and India would need to continue to use coal, regarded as a highly polluting fossil fuel.

Alternative energy -- such as solar, wind power or crop-based biofuels -- could only provide 20 to 50 percent of energy needs in most parts of the world, while transfer to nuclear power was too slow or risky, experts in Davos said.

"It is essential that we facilitate the transfer of clean energy solutions to both India and China. Coal ... is the only readily available energy source in those two countries, so we need access to clean coal solutions," Aigrain said.

Meanwhile, another emerging nation in Davos, Brazil, was promoting its booming biofuel industry, based on ethanol made from sugar cane, and its exports of environmentally-friendly technology.

About 82 percent of cars made there use a mix of ethanol and gasoline fuel, according to the Brazilian government.

Brazil's Industry Minister Luis Fernando Furlan was applauding US President George W. Bush's announcement this week of plans to cut US gasoline consumption over the next decade in favour of ethanol.

"For Brazil, the growth in ethanol consumption in the world is beneficial, whether we export fuel or not," Furlan told journalists.

"It still means new business for Brazilian companies, because we have had this technology for 30 years," he explained.

Global warming: Top scientists meet in Paris -- a draft of the report forecast temperature increases of between 2.0 and 4.5 C as highly likely this century, but that gains of 6.0 C or more cannot be ruled out


Global warming: Top scientists meet in Paris

AFP, 29 January 2007 - The world's top climate experts were geared for a four-day meeting beginning Monday in Paris where they are set to launch a long-awaited update about the scientific evidence for global warming.

The report, to be released on Friday after the conclusion of the meeting, is the first by the UN's Intergovernmental Panel on Climate Change (IPCC) since 2001 and the fourth since the body was launched in 1988.

The IPCC's reports are highly regarded for their neutrality and caution, and they wield a big influence over government policies, corporate strategies and even individual decision-making.

In 2001, the IPCC declared that carbon pollution from burning oil, gas and coal had helped drive atmospheric levels of CO2 to their highest in 420,000 years.

CO2 is the principal "greenhouse gas," a term that applies to half a dozen gases that linger invisibly in the atmosphere, trapping the Sun's heat instead of letting solar radiation bounce back into space.

Over the previous 50 years, temperatures climbed by around 0.1 C (0.2 F) per decade and most of the warming could be attributed to Man, the 2001 report said.

It predicted that by 2100, the global atmospheric temperature will have risen between 1.4 and 5.8 C (2.52-10.4 F) and sea levels by 0.09 to 0.88 metres (3.5-35 inches), depending on how much greenhouse gas is emitted.

Basing their judgement on a mountain of climate studies that have been published since then, the experts are expected to fine-tune these two range estimates.

The British daily The Independent reported Monday that a draft of the report that it saw forecast temperature increases of between 2.0 and 4.5 C (3.6 and 8.1 F) as highly likely this century, but that gains of 6.0 C (10.8 F) or more cannot be ruled out.

The scientists are also expected to point to fresh evidence that change is already happening and could accelerate.

Recent signs of damage to the climate system have been shrinking glaciers and snow cover in high mountains, a retreat of the North Pole's sea ice in summer and acidification of the seas caused by absorption of atmospheric CO2.

"Anthropogenic (man-made) warming of the climate system is widespread and can be detected in temperature observations taken at the surface, in the free atmosphere and in the oceans," said the draft of the report seen by The Independent.

The report is agreed by consensus among the some 500 scientists and government representatives in the IPCC's Working Group 1.

Two other volumes will be issued in April in what will be the fourth assessment report on climate change by the IPCC since it was established in 1988. The two others will focus on the impacts of climate change and on the social-economic costs of reducing greenhouse gases.

Starbucks stirred by fair trade film


Starbucks stirred by fair trade film


Ashley Seager
Monday January 29, 2007

The Guardian

A campaign by Ethiopia to get a fair price for its coffee - some of the world's finest - kicks off in London today as a spokesman for the east African country's impoverished coffee growers meets Tony Blair.

The meeting will be accompanied by a screening of the film Black Gold - a movie on the global coffee industry - to MPs at Westminster, who will also be addressed by the Ethiopian ambassador to Britain.

The spokesman, Tadesse Meskela, who is the subject of Black Gold, together with the film's English makers, brothers Nick and Marc Francis, are a serious irritant to some of the world's coffee giants - in particular Seattle-based Starbucks, whose annual turnover of $7.8bn (£4bn) is not much lower than Ethiopia's entire gross domestic product.

Mr Meskela runs the Oromia Coffee Farmers Cooperative Union in Ethiopia, representing about 105,000 coffee growers, and struggles to get the best price - although it is nowhere near high enough to earn them a decent living.

He says the country's premium coffees - Yirgacheffe, Sidamo and Harar - can sell for fair trade export at about $1.60 a pound. After deducting costs, the growers get about $1.10. Roasters can sell the coffee on at $20-26 per pound. Coffee retailers make about 52 espressos from a pound of coffee, worth up to $160 a pound.

"This ratio needs to change," Mr Meskela told the Guardian during a visit to London. "Our people are barefoot, have no school, no clean water or health centre. They are living hand to mouth. We need $4 a pound minimum, that's only fair."

Black Gold shows malnourished coffee growers depending on handouts of food from the United States to stave off starvation. The documentary has already been released in the US and goes on general release here in April.

But what of Starbucks, who are opening about 2,000 cafes a year and have put messages on their website saying Black Gold "incompletely represents the work Starbucks is doing"?

"Starbucks may help bring clear water for one community but this does not solve the problem. In 2005, Starbucks' aid to the third world was $1.5m. We don't want this kind of support, we just want a better price. They make huge profits; giving us just one payment of money does not help," said Mr Meskela.

Mr Meskela already has the backing of Ed Balls, economic secretary to the Treasury. Mr Balls said: "Delivering trade justice is not just morally right, it is an economic necessity for Tadesse and the farmers.

"We urgently need the WTO talks to start again so that we can make good our promise to deliver trade justice for Tadesse and millions of others in the world's poorest countries."

Starbucks told the Guardian it is paying premium prices to farmers in poor countries, well above the average market price. The pictures of smiling Ethiopians in its cafes, however, belie the reality shown in Black Gold.

Trademark battle

The Ethiopian government, keen to get a much better price for a commodity that makes up the bulk of its exports, has been trying to trademark its three prized coffee brands. And this is where Starbucks' benevolence turns sour.

Although Starbucks only buys about 2% of its coffee from Ethiopia - accounting for only $6-8m of the country's $400m annual exports - it has used its muscle within the National Coffee Association of America to block Addis Ababa's trademarking attempts, as revealed by the Guardian in October.

Ron Layton, a Washington-based lawyer with Light Years IP who is advising the Ethiopians, says successful trademarking could add $88m a year to Ethiopia's export earnings. He says Europe, Japan and Canada have already registered the trademarks and the US trademark office could do so were it not for Starbucks' opposition. "Starbucks clearly fears that if Ethiopia succeeds, other countries will try and follow and it will cost them money. They have even threatened to stop buying Ethiopian coffee, but that would not matter since they buy so little anyway."

He added that other coffee giants, including Green Mountain, the US's second biggest speciality coffee distributor after Starbucks, have been willing to engage with Addis Ababa to discuss a voluntary licensing scheme which recognises their ownership of the coffee brands.

Marc and Nick Francis told the Guardian they were surprised at the opposition their film had provoked from Starbucks, especially as they had not set out to attack the coffee giant. They contacted Starbucks repeatedly during the making of the film but were rebuffed each time.

"The key point of our film is that what is required is that people like the coffee farmers in Ethiopia capture more of the value chain of their product," says Marc.

Starbucks, meanwhile, has gone on a charm offensive, telling its customers "you can feel good about drinking Starbucks coffee", taking its message to YouTube and sending its chief executive to Addis Ababa.

But Douglas Holt, a professor of marketing at Said Business School at Oxford University, says the company may be committing brand suicide by continuing to resist the Ethiopian move. "If Starbucks were to live up to its 'Coffee that Cares' values, the company would be championing the Ethiopian trademark project," he argues in a new paper.

The company built its brand on a commitment to economic justice for its poor coffee farmers, but now risks losing millions of customers if they perceive it as a hypocrite, he says. "Starbucks must now walk the walk even if it means occasionally making economic sacrifices."

$1.10: Amount per pound of coffee that growers receive after deducting costs

$160: Amount that retailers can make on a pound of coffee

Hollywood and pop to help raise value of carbon trading


Hollywood and pop to help raise value of carbon trading


Terry Macalister and Jill Treanor
Monday January 29, 2007

The Guardian

Hollywood actors such as Orlando Bloom and bands such as Coldplay and Scissor Sisters are helping to front an audacious plan to step up the fight against global warming by kick-starting the market for carbon trading.

The scheme aims to buy and retire "carbon credits" to push up the price of CO2. Reducing supply by refusing to re-sell carbon credits should increase the price and financially penalise companies which fail to meet their targets.

It will be launched simultaneously in London and Los Angeles tomorrow by the Global Cool Foundation, the brainchild of music promoter-turned green campaigner Dan Morrell and former City trader Julian Knight.

The charity also wants to use the money raised to invest in alternative energy companies and raise awareness about climate change through a series of concerts specifically aimed at the youth audience.

Members of the public will be asked to donate £20 each to buy "a tonne of cool" and make a commitment to reduce their own personal carbon footprint by a further tonne a year with the aim of taking out at least 1bn tonnes a year of CO2.

From every £20 donated to Global Cool, half will go to buy carbon credits, £4 to alternative energy firms, £3 to putting on Live 8 style concerts and £2 to green charities. The last £1 will cover administration.

"The world is currently creating 26.5bn tonnes of carbon a year and this is set to grow by half a billion tonnes every year, so we want to cut down emissions by 1bn a year," said Mr Morrell. "Global Cool is about buying time and allowing new energy solutions to swing in."

Although Friends of the Earth said it was delighted that Global Cool was trying to do something positive it questioned whether it could influence a £90bn market.

But Mr Knight insists it can work. "We are not going out on day one to influence the market but we do hope that over time we can retire credits and drive up the cost of carbon," he said.

28.1.07

China's economy grew by a dramatic 10.7% last year, but China required 4.3 times as much energy as America in 2005 to produce one unit of GDP, up from 3.4 times in 2002


Still roaring

Jan 28th 2007

China's economy grew by a dramatic 10.7% last year, but this year will be slightly quieter

China Newsphoto


ROSS PEROT, a populist American politician, predicted in the early 1990s that a trade pact with Mexico would create a ''giant sucking sound'' as jobs headed south. Instead, America experienced full employment. So giant-sucking-sound detectors turned to China. In time, China became the workshop of the world, although by then America had long hollowed out much of its manufacturing.

Now there really is a giant sucking sound—not one made by the flight of jobs, but by China ferociously hoovering up commodities and raw materials. Although it accounts for roughly 4% of global GDP (measured at market exchange rates), China consumes 30% of the world's supply of minerals and other raw materials. This time around, the world has not only heard the sucking sound, but has also felt its effects, as the prices of commodities such as iron ore, copper and zinc have soared, doubling or tripling in just a couple of years.

 

How has China suddenly developed such a big appetite? The economy has been growing at a dizzying rate, recently by double digits. Much of this growth is driven by fixed-asset investment, which now accounts for more than 50% of GDP a year—a higher proportion than that of any other country at any time in history. This relentless capacity for expansion has created an insatiable demand for raw materials.

China also wastes a lot. Take energy consumption. China required 4.3 times as much energy as America in 2005 to produce one unit of GDP, up from 3.4 times in 2002. It can be argued that much of China's new investment has not yet reached optimal efficiency. That may be true, but it does not explain why things are getting worse: China consumed 15% more energy per unit of GDP in 2005 than it did in 2002. India, also a rapidly expanding economy, consumes only 61% as much energy as China per unit of GDP.

China's wasteful growth has brought joy to commodity producers and their bankers and shareholders worldwide. With rising profitability and stock prices, they have been happily expanding mining operations and acquiring or merging with rivals. But there are reasons to believe that the surge in commodity prices worldwide has run out of steam.

The slowdown of the American economy, China's largest export market, will further force China to focus on stimulating domestic demand

There is strong evidence that the current cycle of China's investment-led growth has peaked. A clear sign of overheating is the increase in accounts receivable. Although sales appear robust, Chinese firms are beginning to find it difficult to get paid in cash, either because their buyers cannot turn over their own stocks fast enough or because they have trouble borrowing money to finance their purchases. The receivables of the 166 largest state-controlled Chinese firms rose by 14% in the first half of 2006 from a year earlier. For over a third of these firms, receivables now account for more than 30% of total sales, which is twice as high as the average gross margin for Chinese firms. It was the escalating volume of ''triangular debts'' or receivables between different domestic firms that led to the overheating and consequent severe austerity programme in the mid-1990s.

China's growth has become too expensive in many ways. Overinvestment pulls up prices of raw materials but, simultaneously, overcapacity depresses the prices of finished products. Whereas prices of imported raw materials rose sharply between 2003 and 2005, those of Chinese exports to America fell by 5.2%. As a net importer of raw materials and a net exporter of finished products, China is paying a high price for its growth, particularly to commodity-producing countries.

China needs a break to catch its breath, in more ways than one. As anyone who has been to the mainland in recent years knows, all the major cities are choking with smoke and environmental damage has reached appalling levels. The government knows this and during 2006 tightened the screw on the economy several more turns. Interest rates will continue to rise. The trouble is that much of the liquidity comes from hot money, which finds its way into China around foreign-exchange controls in anticipation of a yuan appreciation. Each rise in interest rates only encourages more speculative inflows. This means that China will inevitably allow the yuan to appreciate further in 2007 (though not as sharply as worriers in Washington, DC, would like), while also further relaxing capital controls, to keep the growth of money supply at least partly in check. The central bank has taken other measures to reduce liquidity, including telling banks not to lend to ''overheated sectors'' such as steel, cement, coal and power, and forcing them to buy central-bank bills.

These measures are already checking investment growth. The economy will grow more slowly in 2007. This will help the country make the transition from investment-led growth to expansion led by private consumption. The slowdown of the American economy, China's largest export market, will further force China to focus on stimulating domestic demand.

All this suggests that the good times for commodity producers are about to come to an end. Although commodity producers will mourn it, a quietening of China's roar will help sustain its growth. And, for the health of China and its neighbours, a pause for breath—of cleaner air, one hopes—will definitely be welcome.