Sustainablog

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

16.3.07

[CSR newsclip] Lights! Water! Motion! The world’s urban infrastructure needs a $40 trillion makeover. Here’s how to reinvigorate our electricity, water, and transportation systems by integrating finance, governance, technology, and design.


Lights! Water! Motion!
by Viren Doshi, Gary Schulman, and Daniel Gabaldon
 
The world's urban infrastructure needs a $40 trillion makeover. Here's how to reinvigorate our electricity, water, and transportation systems by integrating finance, governance, technology, and design.

The drought of 2006 in London, the worst in a century, will be remembered for the dirty little secret it exposed. Hundreds of thousands of liters of water — enough to fill 10 million bathtubs — were leaking every day from the city's old and rotted pipes, some of which dated back to the Victorian era.

Around the same time, 3,000 miles away, a blackout in the New York City borough of Queens left nearly 100,000 people without electricity for nine days. Local officials were at a loss to explain the failure. Customers later learned that this borough, with more than 2 million residents and 15 percent population growth since 2000, gets its electricity through utility feeder cables that are 30 to 60 years old. These narrow and corroding conductors were not only unable to keep up with rising demand; they had also made it difficult for engineers to diagnose the breakdown.

Photograph © Reuters/Corbis
The Manhattan skyline during the largest electric power outage in North American history, August 14, 2003. Fifty million people lost power, 4 million people lost water, and many railroads and airports were shut down.

Across the world in Lagos, Nigeria, people were coping with a messy but familiar problem. It could take hours to travel even a couple of miles by car in this metropolitan area of more than 10 million people. The traffic authorities routinely ordered psychiatric tests for those drivers accused of jumping curbs, driving on the wrong side of the street, or starting fistfights — a form of lawbreaking brought about by what is known even officially as "insane gridlock."

Cairo, Los Angeles, Beijing, Paris, Moscow, Mumbai, Tokyo, Washington, Sao Paulo: Each major city has its own story of electricity, transportation, or water systems in crisis. Although the circumstances vary from one urban area to the next, they all have one thing in common: The critical infrastructure that is taken for granted by both their citizens and their government leaders is technologically outdated, woefully inadequate, increasingly fragile, or all of the above. In some cities, the quality of water, power, and transportation infrastructure is noticeably declining. In others, it was never very good to begin with. And few cities have enough of it to meet future needs.

An estimate developed by Booz Allen Hamilton suggests the magnitude of the problem. Over the next 25 years, modernizing and expanding the water, electricity, and transportation systems of the cities of the world will require approximately $40 trillion (see Exhibit 1) — a figure roughly equivalent to the 2006 market capitalization of all shares held in all stock markets in the world.

The challenge is exacerbated because we do not start with a blank sheet of paper. Cities have histories, cultures, dense populations, property rights, and deeply embedded political interrelationships that all demand respect. Past efforts to improve urban infrastructure have often led to disappointments. Not all projects have been equally deserving, not all forms of financing are equally advantageous, only some decision makers are sufficiently frugal and trustworthy, and wise judgment is not always applied in making and executing choices. Moreover, expertise cannot be applied the same way around the world: Getting an infrastructure project approved requires an entirely different political process for the multiple competing authorities of metropolitan New York than for the hierarchical government of a Chinese city like Beijing.

But the cost of not meeting the challenge could be even greater than $40 trillion. The global economy is rooted in an urban lifestyle, which evolved with basic assumptions that millions of people take for granted. They can commute from work to home, and have access to light, heat, and water at the flick of a switch or a tap. Anyone who has lived without that access — for example, in Abidjan during its frequent blackouts, in Mumbai, where water supply is restricted to a few hours per day, or in New York in the days after the 9/11 attack when transportation came to a halt — knows how difficult it is to function without it. Moreover, the prime enabler of global trade is the increasingly complex just-in-time supply chain logistics system, which depends, in turn, on reliable power, mobility, and water. A city's ability to respond effectively to a crisis, such as pandemic disease or a terrorist attack, also depends on robust infrastructure: not just standard access to water, power, and mobility, but the extra capacity and backup needed for life under duress. In short, although the threats of global climate change and terrorist attack have occupied much of the industrialized world's collective attention, inadequate and fragile urban infrastructure could well do more harm to a larger number of people.

Photograph © Getty Images
During the summer of 2006, one of the driest in England in 70 years, burst pipes like this one (photographed May 16) spewed water onto London streets.

The solution is not simply more money or technological wizardry. At heart, we face a challenge of imagination. Solving the problem will require letting go of obsolete approaches to financing, governance, and management — approaches that no longer work in our politically, technologically, and administratively complex society. We will need new incentives for planners and builders and new ways of designing decision rights exercised among dozens of related players from the public and private sectors. We will also need to recognize a controversial truth: Transportation, energy, and water infrastructures are so interdependent that they cannot be effectively addressed separately from one another.

Sooner or later, the money needed to modernize and expand the world's urban infrastructure will have to be spent. The demand and need are too great to ignore. The solutions may be applied in a reactive, ad hoc, and ineffective fashion, as they often have been in the past, and in that case the price tag will probably be higher than $40 trillion. After all, infrastructure projects are notorious for cost overruns. But perhaps the money can be spent proactively and innovatively, with a pragmatic hand, a responsive ear, and a visionary eye. The potential payoff is not simply the survival of urban populations, but the next generation of great cities.

Infrastructure Fatigue
This article, of course, is hardly the first to identify the urgency of the infrastructure problem, or to hypothesize a solution. But several trends combine to make the need to address the crisis more urgent than many people may realize.

First, the demand for essential infrastructure is exploding. The world's population is projected to increase by one-third, to exceed 8 billion by 2050, with — for the first time in human history — more than 50 percent of humanity living in metropolitan areas. The requirements for water, power, and mobility will rise accordingly, even as population density makes it more difficult to build and protect the robust infrastructure needed to satisfy that demand. (See Exhibit 2.)

In addition, a new wave of global workforce mobility has added to demand. As companies hire people from around the world, both employees and employers are less constrained by national or regional interests. Urban areas increasingly compete for the best, brightest, most hardworking, and most entrepreneurial residents. In a study of U.S. urban competitiveness, economist Joseph Cortright wrote: "Young adults, particularly college-educated 25- to 34-year-olds…will play an especially important role in determining which places grow." Some U.S. cities attract young talent (Atlanta; Charlotte, N.C.; Portland, Ore.), while others (Philadelphia, Providence, Dallas) struggle to catch up. Access to global capital and technology has similarly reinforced the cultural magnetism of cities such as Bangalore, Barcelona, Curitiba, Dubai, Dublin, Milan, Perth, Prague, Shanghai, Sofia, and Toronto. Abundant and reliable power, water, and transportation are critical enablers of the higher quality of life — economic, social, and cultural — that makes these cities attractive and stems the so-called brain drain.

The typical life cycle of urban development also reinforces demand for infrastructure. As more people live and work in metropolitan areas, they need and expect more affordable housing. The default result, barring a coordinated effort to align mass transit systems and transit-oriented development, is a sprawling metropolitan area encompassing miles of suburbs — and in less-developed countries, shantytowns. In such low-population-density environments, roads and highways become the only transportation mode that works. This, as we have seen time and again, becomes a recipe for gridlock. Water and electricity grids must also serve more people over greater distances than in the past.

The acceleration of demand is already evident in the developing world. In 2002, the three geographic locales with the fastest-growing rate of electricity use, between 4 and 5 percent per year, were China, India, and Latin America (including Mexico and the Caribbean). Together, they consumed about 4,500 terawatt-hours (TWh) of electricity; the United States and Canada, with about one-tenth the population, used about the same amount. But by 2020, according to International Energy Agency projections, the combined electricity consumption of these three areas is expected to reach more than 12,000 TWh — double or triple the expected demand of North America, which itself is growing at 2 percent annually.

Meanwhile, the quality and quantity of supply are increasingly threatened everywhere:

  • Power. After the "energy crisis" of the 1970s led to a worldwide power generation boom, there were such gluts of electricity capacity that spending on utilities — new construction as well as maintenance — slowed measurably. The cycle has shifted back to scarcity, and cities everywhere now face shortages again. For example, even if the many European power plants built in the 1950s had been well maintained, there would still not be enough of them to meet the growing commercial electricity demand on that continent, especially in the awakening economies of Eastern Europe. The  International Energy Agency's last comprehensive study of world energy ("World Energy Outlook," 2004) estimated that almost $4 trillion in power-sector infrastructure improvements will be needed in the OECD countries over the next 30 years: half for power generation and half for transmission and distribution. In the U.S., the North American Electric Reliability Council found that demand for electricity is increasing three times as fast as resources are being added.
     
  • Transportation. Although many roads, rail lines, and airports have been built or upgraded, need is growing at a faster pace. The U.S. Department of Transportation estimated in 2006 that freight bottlenecks and delayed deliveries due to congested highways and inefficient rail and deep-water transportation systems cost the U.S. $200 billion annually. According to the Texas Transportation Institute, rush-hour travelers in major metropolitan areas spent 3.6 billion hours in traffic jams in 2000. One measure of air travel congestion, the number of planes operated by private carriers, is up more than 30 percent since 1990, even as the number of airports serving commercial airlines has shrunk. To be sure, some of the demand for increased mobility is, as Danish planning professor Bent Flyvbjerg puts it, a desire for "utopian frictionlessness": the impossible dream of being able to get anywhere, from anywhere, instantly. But if the population and mobility trends of the last 30 years continue for the next 30 years, the United States and Europe would have to at least triple their transportation infrastructure just to get back to the congestion levels of 30 years ago.
     
  • Water. Cairo provides a prime example of how a poor water infrastructure constrains the new urban centers and megacities of emerging markets. Dependent on old pipes and conduits that snake to the Nile River, Cairo residents regularly endure low water pressure and high levels of lead contamination. Because water and sewage lines run side by side, endemically corroded pipes often lead to leaks that pollute freshwater with wastewater. As a result, cholera and other waterborne diseases are a constant hazard for this relatively cosmopolitan Middle Eastern city, preventing it from assuming a more prominent role in the global economy.
Developed nations are no less vulnerable to water crises. In some of the largest U.S. cities, water mains and feeder pipes date back to the 1860s; it is not unusual for a metropolitan area to have as many as 1,000 water main breaks a year. In Detroit, where 35 billion gallons of water leak from the water supply each year, residents pay about $23 million annually for water that never reaches their homes or businesses.

These problems would be challenging enough if they were happening separately. But they may all be hitting a crisis point simultaneously. Cycles of infrastructure fatigue seem to be timed in many metropolitan areas so that major replacement efforts will have to occur within a few years of each other — and decay in one technological arena (energy, transport, or water) may well exacerbate decay in others. (See Exhibit 3.)

At the same time, voters and taxpayers are increasingly resistant to funding massive new infrastructure projects. This can be traced partly to limited budgets, but it also reflects the poor reputation that many infrastructure projects and "megaprojects" have earned. For example, Ireland spent billions of dollars on highways between the mid-1970s and the mid-1990s, but the government favored two-lane roads where cars cannot easily pass one another. The result was a nation beleaguered by slow-moving traffic. (Ultimately, the authorities changed their approach, building high-density roadways connecting Belfast, Dublin, and Cork, and the problem eased somewhat.) If Ireland underestimated capacity, many projects do the opposite: The Channel Tunnel rail line, linking London and Paris, experienced cost overruns of 200 percent, and passenger and freight volume, after seven years of operation, was less than half the original estimates. Other negative associations also linger in the public mind. Neighborhoods demolished by freeways and highways gave rise to the antidevelopment movement made famous by writer–activist Jane Jacobs; Swedes disproportionately use the Øresund rail tunnel to take advantage of Denmark's more liberal liquor laws; and the cost overruns and production problems of Boston's "Big Dig" Central Artery/Tunnel project were linked, fairly or not, with the fall of a poorly anchored ceiling panel that killed a motorist in 2006.

Furthermore, citizens seem unwilling to make many concessions to improve the quality of their infrastructure. Urbanites regularly say they want to live in a place with high quality of life, but they resist the easiest means by which governments can pay for it: increased highway tolls, abandonment of water and heating fuel subsidies, and energy taxes. Because the political will to provide more than minimal services at the lowest possible cost doesn't exist in many places, delivering infrastructure services on a sustainable cost-recovery basis is beyond the financial ability of most urban authorities. This is particularly true for nascent democracies, whose leaders are just learning how to lead in societies where their control is diluted.

Many governments have responded to these pressures during the last few decades by muddling through. They fix problems in a piecemeal fashion, "satisficing" the population, giving residents just enough improvement so that they don't boil over in anger or move away. Highways expand from three lanes to four, but only in areas where the cost is low, which may not solve the worst gridlock problems. Or, as California did after its 2002 energy crisis, governments line up new electricity suppliers sufficient to meet current demand, but fail to plan for increased demand in the future. Some localities cope by refurbishing archaic technologies, without either the up-front investment or the eventual savings that a complete redesign would provide. Such incremental solutions not only fail to address the need for infrastructure, but exacerbate it in the long run, by drawing more people into the region without satisfying the need for better service.

Interdependence and Imagination
What, then, would a comprehensive solution look like? It would start with recognition of the interdependence of the many players involved. Water, energy, and transportation, for example, are typically administered by different regulatory bodies and innovated by separate companies. Yet they are closely related. Wherever roads and rails are built, water and power quickly follow. Electricity plays a central role in the control instrumentation that manages transportation and water systems; power plants depend on water for operations and transportation for fuel. Desalination of seawater, currently so complex and expensive that only wealthy, arid nations like Saudi Arabia use it routinely, can become much more cost-effective with expanded power capacity  (along with new membrane osmosis technologies). Up-front costs have slowed the adoption of "smart grid" approaches (use of computer controls of the electric grid to balance peak loads, mitigate crises, and integrate multiple power sources) and "vehicle infrastructure integration" (use of wireless technology, sensors, and signals to coordinate traffic and thus improve highway safety and expand capacity). All of these approaches could benefit from being planned in tandem. But even when they take advantage of common resources, such as sharing rights-of-way, they are typically planned separately. That should change.

The roles played by the public and private sectors also need rethinking. Since the early 1990s, politicians and economists have engaged in a heated debate over a false dichotomy: Which form of authority is better at developing infrastructure, government or business? We now know that success or failure has little to do with this essentially meaningless question. Many well-known and conceptually credible projects have gone awry under public management; the Channel Tunnel and the Boston "Big Dig" are just two examples. But projects also falter under private management, particularly when there is a de facto monopoly in place. A series of German high-speed interurban rail projects undertaken in the 1990s by Deutsche Bahn AG led to that company's near-bankruptcy; the privatized toll-booth plan for the Capital Beltway in Virginia went over budget by $100 million; and many independent power projects (IPPs) of the early 2000s, particularly those intended to generate electricity from natural gas, are now worth half of their original investments.

Experience suggests that the best projects are those that make best use of the public–private relationship. Unfortunately, government agencies and private contractors (such as engineering and construction firms) are typically not in a position to fully appreciate the dependence that each has on insights from the other or the potential advantages in working openly with each other. They lack the kinds of incentives, relationships, and information that would make it easier for them to plan and execute projects together.

But it doesn't have to be that way. A more effective infrastructure approach starts with a series of questions. How can we create a public environment in which the private sector is naturally motivated to make the right longer-term investment decisions? How can the public overseers keep the project from becoming an inherent monopoly, without trapping the private-sector companies in a web of controls and obligations? How can the project as a whole set reasonable cost estimates and ultimately charge viable prices, when much of the population cannot afford the true cost of the energy, mobility, and water provided in even the most minimal "lifeline" service? And if the private sector does not perform to expectations, how can the investment of millions already spent be salvaged and transferred to newcomers?

Answers to these questions are emerging in each of the three basic stages of infrastructure management: design and approval, oversight and financing, and construction and operations.

Photograph © Reuters/Corbis
"Insane gridlock" on the commercial Oshodi road in Lagos, Nigeria, April 17, 2003

Light-Handed Government
Critics sometimes argue that there is "too much government" in design and approval. They typically mean that governments play a heavy-handed role in choosing and planning projects, often favoring those special interests that, through lobbying and other forms of influence, promote suboptimal projects and goals. But in fact, that is a symptom of too little government.

A genuinely effective planning process uses the government's convening power to create a transparent, open discussion from the start, with sufficient opportunities to hear from stakeholders and anticipate possible problems before the design is finalized. This requires straightforward and complete statements of the plan's objectives (unfortunately a real-world rarity), along with its costs and benefits, made clear to the public. It may also require a more coherent overlap between the geographic scale of a project and the coordination of authority. Consider the A86, the outer ring road around Paris; it meanders in parts because of the veto power held by local jurisdictions over its route. The road's planning began in the 1970s, and because there was no single authority that could direct rights-of-way over private land, construction has taken more than 25 years. Contrast this to Beijing's ring road system: four fast-flowing concentric highways, completed by a central authority in less than 10 years. In a democracy, cross-agency coordination plays a more critical role than many people realize; it will make or break many of the infrastructure projects that cities need to survive.

Government, in short, is best positioned to lead the initial planning stages, but deftly and selectively, with a firm but light-handed oversight role that emphasizes goals instead of means. One prerequisite is to build the capacity for local governments to act more effectively. Federal governments, rather than making decisions or providing financing, should limit their role to setting standards and drawing together expertise in a discriminating fashion. Local governments, which typically have direct jurisdiction over infrastructure projects, need to learn to set up inclusive, fair, and rational decision-making forums, open to the public and business sectors. The project process should be set up with deliberate incentives for the private sector, not just so companies can position themselves as contractors, but so they can offer their ideas and insights early in ways that can influence the entire planning process.

Sustainable Financing
The private sector should take the lead, meanwhile, in financing, pricing, and ownership. This in itself will represent a significant change in the way many infrastructure projects are developed, particularly in water and transportation. In general, the state makes a poor owner over the long term. Its financing is inefficient; the cost of capital is artificially low, which skews decision making; and the short time horizons of government bonds create few incentives to minimize costs, to seek innovation, or to prioritize.

The answer lies in deploying a new set of incentives that take advantage of the best aspects of government and business. Currently, the incentives found in most major infrastructure programs around the world nearly guarantee the approval of poorly conceived projects and cost overruns, because of the way they are designed:

  • The people most affected by a water, power, or transportation system don't have the authority to approve its construction.
  • The people who approve it are not those who use it most.
  • The customers who use it most don't pay most of the costs, and thus have little reason to use infrastructure resources wisely.
  • The people who pay the costs (taxpayers, those who underwrite the capital, and those displaced by its construction) don't necessarily benefit from it.
  • Those who benefit most from maximizing its costs (developers, contractors, and particular businesses) often have too much of a voice in determining how it is organized and developed.
To overcome these problems, the most appropriate government role in financing is explicit without direct oversight management: setting up a transparent, nonpreferential financing process and then allowing capital markets to bear the risk and reap the financial reward. Allocating and syndicating risks is one of the things that the private sector does best (and most creatively). Capital markets are also hungry for this type of relatively low-risk, long-lived investment. With the establishment of basic and tested legal and financial instruments (such as securitization), infrastructure has taken off as an investment in recent years. It is particularly attractive to institutional investors because it is largely uncorrelated with other classes of financial assets available to them. And it can be profitable: Booz Allen estimates suggest that in 2006, five-year returns included 11 to 13 percent for airports, 10 to 13 percent for toll roads, 8 to 10 percent for rail passenger lines, and 10 to 14 percent for wastewater plants.

Using fees to reflect underlying costs is another critical component of a financially sustainable infrastructure sector. One way to accomplish this is through marginal pricing: charging more for "peak" service, such as rush-hour transportation or residential electricity use during early evening, when or where demand is high. Although this type of pricing is often criticized as making poor people pay more, it turns out to be the most effective way to create the kinds of feedback loops that improve cost performance and quality. And cities already have a great deal of experience using tax policies and targeted subsidies to overcome any regressive implications. Those who can't afford to pay for electricity or water can be guaranteed a minimum amount to maintain a decent quality of life.

Marginal pricing also provides an incentive for suppliers of energy, transportation services, and water to provide higher overall value. And there is increasing evidence that the public will not just accept, but enthusiastically endorse, higher prices in exchange for greater quality. One prominent example is the "road pricing" highway fee system of Singapore and Hong Kong. London adopted the approach in 2002; since then, drivers who bring their automobiles into the inner-city traffic zone have been charged a daily fee (originally £5, later raised to £8). As a mechanism to control traffic, the program is a success. In the first six months of the plan, 60,000 fewer vehicles entered the zone than in the year before. Sixty percent of this reduction was the result of people shifting to public transport, 20 to 30 percent was attributable to drivers avoiding the zone altogether, and the remainder was attributed to car sharing (the British expression for carpooling). Travel times in and out of the zone were reduced by 15 percent.

This scheme has certainly generated some controversy; critics accuse it of merely displacing the gridlock to outer London. But according to a 2006 Royal Automobile Club report, 63 percent of motorists approve of the system, especially if the money is used to improve the roads and public transport. It has also led to stronger support for employer incentives to encourage bicycle commuting (with office showers and secure bicycle parking), telecommuting, car sharing, and other congestion-reducing schemes.

Another example is the willingness with which consumers pay for bottled water and in-home water filtration systems; they will pay a premium for what has historically been viewed as the most essential of infrastructure services, but in return they demand quality and a level of control.

Because marginal pricing reflects the real value of infrastructure services, it is essential for effective development, upgrading, maintenance, and conservation. Without it, private-sector decision makers cannot accurately forecast returns on investment; they will avoid infrastructure projects, believing that they will never truly generate returns adequate for the risks. To avoid some form of marginal pricing is, in effect, to subsidize the users of peak-demand services, which are always more expensive to provide. By contrast, "one-price-fits-all" approaches systematically encourage wastefulness and unsustainable development; consumers are not penalized when their use of water or electricity or their travel burdens the whole system, and thus they continue to waste the city's resources.

Making Cities Magnetic
The final important area for change is in construction and operations. Governments are rarely equipped with the management skills needed to make projects work in an entrepreneurial, multifaceted global economy. Hampered by cumbersome procurement rules and local political constraints (the demand for local jobs, for example), they can't leverage scale or speed in their supply chains to minimize costs. What's more, the private sector can attract more innovators who could bring novel ideas to a major construction effort.

Therefore, the government's role in construction and operations should be limited to oversight — not through enforcing rules and procedures, but through setting goals and incentives, establishing the criteria for success, and selecting the contractors in a structure that encourages both collaboration and competition within a project. This would allow the private sector to conceive and implement more novel, creative, and profitable infrastructure systems at lower costs. Ideally, excess revenue generated from innovation and efficiency would be retained by the private contractors, since they would also have taken on the lion's share of the risks.

Some of the best-managed airports in the world are run this way. The government of the Netherlands, rather than choosing to manage Amsterdam's Schiphol International Airport directly, formed a private corporation called the Schiphol Group. It operates the airport, leases the retail stores and office space, and runs associated logistics and data center businesses. In this case, it is owned by the State of the Netherlands, the City of Amsterdam, and the City of Rotterdam, but it could also be a publicly held company.

Where this kind of arrangement has worked, private contractors regularly provide comprehensive updates on the operations, detailing ongoing costs, maintenance needs, supply–demand balance, and the status of upcoming phases. The government, as well as nongovernmental organizations and local citizens, can easily and publicly respond to this information, pointing out the deficiencies in the company's plans so they can be addressed before it is too late. The profession of asset-management specialists is emerging to help both public and private organizations navigate these new types of partnerships, bringing in awareness of best practices from around the world, and helping to define the incentives and procedures that will lead to better results.

One last change would also help: In conventional infrastructure initiatives, the same engineers who build the project often have a hand in approving it. That is a recipe for abuse, and it led, in the 1970s, to a backlash; one motto of the antidevelopment movement was "don't trust the experts." Both the abuse and the lingering backlash attitude from past abuses must be discarded. The relationship between the builder and the approver must be kept at arm's length, but it need not be adversarial. There should be a thorough, up-front exercise in cost-benefit analysis, open to all onlookers, done in time to influence the decision. Incentives for meeting goals in quality, longevity, environmental impact, and employment should be clarified before companies bid for a project.

As people pour into cities, the abundance of power, water, and mobility will define their lives. Problems like this $40 trillion challenge are not solved overnight, and muddling through will probably work, as a substitute for strategy, for another five years. But the sooner we think about it comprehensively, the less expensive the solution will be.

In the end, some cities will organize their infrastructure more effectively than others. They will figure out how to balance public and private interests; how to put the right incentives in place for resilience and growth; and how to leverage the relationships between water, power, and transportation. They will become the cities of opportunity; they will be the cities, for example, where many readers of this magazine will choose to work and live. They will become centers of growth and innovation for the farsighted companies of the next 100 years. And they will become magnets for humanity, standing on the platform of quality infrastructure: a platform that goes generally unnoticed — except when it doesn't work.

Beyond Vulnerability
by R. James Woolsey
In March 2004, United Kingdom police raided the home of Omar Khyam, the 24-year-old ringleader of the so-called Operation Crevice terrorist plot. They found CD-ROMs with detailed plans of Britain's electricity and gas systems. According to a New York Times report in November 2006, Khyam was recorded talking about a planned simultaneous attack on Britain's gas, electricity, and water systems: "The electrics go off so it's a blackout, and then the gas lot move in and bang. Then something goes wrong with the water."

Even in the absence of a planned attack, the world's infrastructure for energy, water, and transportation is increasingly congested, fragile, and in need of costly modernization. Tens of millions of electricity consumers, for example, lost power for many hours in the eastern U.S. and Canada in August 2003 because a tree branch fell on power lines in Ohio. But terrorists are a great deal smarter than tree branches. Just as they figured out the vulnerabilities that could be exploited in our civil aviation infrastructure prior to September 11, 2001 (short knives permitted in hand luggage, flimsy cockpit doors), they can exploit the growing vulnerabilities of our energy infrastructure — as the defendants in the Operation Crevice case seemed to have intended for the U.K. That's why it is so crucial to design and build the next wave of infrastructure with resilience in mind.

At least the systems providing electricity and water are under the control of the societies that need them. Not so the infrastructure for oil, much of which is in the increasingly volatile Persian Gulf. In February 2006, Saudi guards fought off an attempted al Qaeda attack on Abqaiq, an oil production facility in northeastern Saudi Arabia through which roughly two-thirds of Saudi crude must pass. Had the attackers destroyed the sulfur clearing towers there, they could have taken 7 million barrels a day offline for well over a year and sent oil prices above $100 a barrel. 

Fortunately, three sets of technological developments may increase resilience around the world by making it possible to design new types of far less vulnerable infrastructure.

First, genetically engineered enzymes and other biocatalysts, together with several new thermal and chemical processes, are now entering the market. They are making it possible to produce transportation fuels — ethanol, methanol, renewable diesel, biodiesel, and butanol — from inexpensive and widely available biomass feedstocks, including prairie grasses such as switchgrass, and even industrial, municipal, and animal wastes. As a result, transportation fuels will increasingly be produced in relatively small facilities, often located near farms, urban waste sites, or other sources of biomass. Such facilities may also function as small biorefineries, producing such compounds as polylactic acid (basic to many plastics) and propanediol (for textile fabric products). 

These developments have the potential to substantially reduce the world's dependence on oil from the Middle East and other unstable regions. The economic implications of such a shift are profound. In 2007, the United States alone will borrow about $320 billion, nearly $1 billion a day, to import oil. Replacing only one-quarter of those imports with biorefinery feedstocks consisting of biomass and waste would transfer some $80 billion to the U.S. economy — an amount roughly equivalent to current total net farm income.

The second technological development with profound implications is the continued development and decentralization of the electricity grid itself. Forty of our 50 states have net metering laws that enable individual electricity consumers to sell electric power that they generate back to utilities. But until recently, the cost of photovoltaic solar collectors, the inadequacy of modern wind turbines, and the limited capability of batteries for electricity storage have substantially restricted the practicality of small-scale electricity generation. 

Now the promise of thin-film solar collectors is beginning to be realized, making rooftop electricity generation considerably more efficient and affordable. Wind turbines suitable for individual building use are also beginning to come onto the market. Wind and solar collectors have an inherent complementarity; solar is most effective in the middle of the day, whereas wind tends to blow strongest during the morning and evening hours. New and far more powerful batteries will augment their capability and make feasible a new form of plug-in hybrid gasoline–electric vehicles. Dozens of prototypes of these vehicles exist; they demonstrate the flexibility of a hybrid (storing gasoline for long trips), with double the mileage of ordinary hybrids. Energy efficiency has also sharply increased in the design of items as varied as lightbulbs, appliances, and buildings. Before long, consumers may generate much of the electricity they use, even supplying a portion of their plug-in vehicles' power needs — with transmission lines no longer than the distance from a rooftop collector device to an electrical outlet in the house or garage.

The third factor is Moore's Law: Computer chips' power continues to grow even as their price continues to shrink. This longtime phenomenon is working its inexorable changes on today's still-too-cumbersome communications infrastructure. New telecommunications systems such as wireless mesh, currently used mainly for emergency networks, are extremely resilient. They can permit voice over IP, videoconferencing, and other communication modes. Their use can greatly reduce business travel and commuting.

A society that can fuel its vehicles from locally available biomass and waste, generate its essential electricity (including a share of its vehicles' power needs) from its rooftops, and handle essential communications without vulnerable infrastructure will be much better equipped to face the challenges of the 21st century.

R. James Woolsey (woolsey_jim@bah.com) is a vice president with Booz Allen Hamilton and former director of the United States Central Intelligence Agency. He has held U.S. presidential appointments in two Democratic and two Republican administrations.


 

The Environment: Let's Get It Right
by Molly Finn and Gary Rahl
Today's worldwide wave of urbanization is unprecedented in scale and scope.  As our expanding "megacities" address the daunting challenge of renewing their infrastructure — their mobility, energy, and water systems — the impact on the quality of the natural environment (our forests, soil, air, and water) will be dramatic. This is not a new phenomenon. In his book Collapse: How Societies Choose to Fail or Succeed, naturalist Jared Diamond describes societies throughout history — including Roman, Anasazi, and Mayan civilizations, as well as those of Easter Island and Norse Greenland, and, more recently, communities in Rwanda, Haiti, and Montana — that have lost or are losing the ability to sustain their people. He concludes that human efforts to expand infrastructure can lead, often unintentionally, to ecological decline that in many cases catalyzes the whole society's collapse. With the stakes so high, we must get it right this time.

We should begin by better understanding the complex and powerful relationships among infrastructure, human behavior, and the environment. The power, water, and transportation systems in place today were mostly created without much regard for their impact on nature. Investment in the 19th and 20th centuries was primarily supply-oriented: Planners would predict population growth, assume that consumption patterns would remain unchanged, and provide energy, water, and transit accordingly. Few people imagined that these decisions could affect the atmosphere, the ocean, and the forest so deeply.

Today, we know better. The quality of infrastructure and land-use planning "hard wires" the environmental impact of a given region. The more consciously we can build infrastructure that doesn't harm, or that even helps restore, the natural environment, the more likely it is that those designs will endure. Cities, in particular, that design their infrastructure with a bias toward ecological awareness — for example, with minimal water leakage, energy-efficient buildings and appliances, well-designed mass transit, and expanded use of renewable energy and fuel-efficient vehicles — will be far more sustainable and resilient than most cities today. Conversely, cities that ignore environmental impact will find themselves facing another collapse of infrastructure 30 or 40 years from now, and our children and grandchildren will bear a much higher price tag.

What would it mean to take environmental sustainability into account? Projects would include collaborative planning, decentralized funding, and demand-side management — promoting human habits, like more efficient use of energy or shorter commutes, that minimize environmental impact. We already have sufficient proof that "pollution prevention pays," that reducing waste and conserving energy are cost-effective in the long run. But decision makers still often do not see sustainability as central to the infrastructure challenge and therefore rarely reap the benefits, even when the bottom-line implications are clear. That's why enlightened planning and decision making may need to go beyond traditional return on investment measures.

As the "$40 trillion challenge" concept suggests, many cities will make major infrastructure investments in the next 20 years. They will have no choice. Putting more time and thought into sustainability will ensure that their investment pays off in the short term, in attracting people and enterprises, and in the long term as well.

Molly Finn (finn_molly@bah.com), a vice president with Booz Allen Hamilton based in McLean, Va., leads the firm's environmental business.


Gary Rahl (rahl_gary@bah.com), a vice president with Booz Allen Hamilton based in McLean, Va., leads sustainability initiatives in the public and private sectors.
 

Reprint No. 07104

Author Profiles:


Viren Doshi (doshi_viren@bah.com) is a vice president with Booz Allen Hamilton in London. An expert in leading strategy-based transformations, he works with companies in the energy sector across Europe and the Middle East.
Gary Schulman (schulman_gary@bah.com), a vice president with Booz Allen Hamilton in New York, is a leader in the firm's global transportation business. He specializes in procurement strategy and mission integration for aviation infrastructure, highway, and mass transit clients.
Daniel Gabaldon (gabaldon_daniel@bah.com) is a principal with Booz Allen Hamilton. Based in McLean, Va., he focuses on providing strategic advice to leading participants in the global energy and infrastructure sectors.
Also contributing to this article were Booz Allen Hamilton Principals Michael Delurey and Jack Opiola, Associate Max Kattan, and Senior Consultant Kierstin Case.

[CSR newsclip] Private Equity: How do you reassure those who might be concerned about less transparency in corporate governance and reduced financial disclosure?


Private Equity
Submitted by Danielle on Wed, 2007-02-14 19:38. Compliance & Governance | Social Responsibility

David RubensteinAn interview with David Rubenstein, Co-Founder of The Carlyle Group.

By Michael Connor

The deals have been getting larger and more high-profile: Spanish language broadcaster Univision ($12.3 billion), casino operator Harrah's ($17.1 billion), hospital operator HCA ($21.2 billion) and commercial building owner Equity Office Properties ($23 billion). And these figures do not include billions of dollars in debt assumed by the buyers. Finance insiders say more and bigger transactions are coming, with a $50 billion deal possible soon and a $100 billion deal maybe only a matter of time.

What distinguishes these sales from routine mergers and acquisitions is that they involve publicly held companies being bought—and taken private—by private equity firms. With global markets awash in capital, and interest rates low, private equity firms executed $664 billion in buyouts in 2006, according to Thomson Financial. That number was nearly twice as much as the year before and accounted for approximately 18 percent of global merger and acquisition volume.

Private equity firms raise money from large institutional investors—many of them pension funds—to buy companies that they think are undervalued, with the acquired company frequently taking on substantial debt to help finance the deal. Private equity firms work with existing management, or bring in new management, to operate the companies. Their goal is to eventually cash out through a stock offering or outright sale.

As private equity booms, it confronts issues of corporate responsibility. Corporate governance—a key measure of accountability at publicly held companies—becomes far less transparent when a business is privately owned. In fact, many think the rush to go private reflects a corporate and executive weariness with the reporting demands of the Sarbanes-Oxley Act of 2002. While private equity firms argue that they "build value" with a longer-term business perspective, free from quarter-to-quarter earnings pressures, critics accuse them of sometimes "stripping" acquired companies of assets before "flipping" them. Shareholder activists who organize around social and environmental issues lose a powerful weapon when there are no publicly held shares.

One of the largest private equity firms in the world is The Carlyle Group, based in Washington, D.C. Founded in 1987, the firm now manages more than $46 billion from 27 offices around the world. Originally known as an acquirer of defense companies, last year Carlyle joined with other private equity firms in successful bids for information company VNU, energy giant Kinder Morgan and Freescale Semiconductor, among other deals.

Carlyle executives bristle at frequent media descriptions of the firm as "secretive" (a Google search combining the words "Carlyle" and "secretive" returns more than 65,000 results) and, along with other private equity firms, have recently stepped up efforts to make the industry's case.

David Rubenstein, one of three co-founders of The Carlyle Group, is a lawyer by training. He spoke recently with CRO Editor Michael Connor about governance, corporate social responsibility, and the evolving role of private equity.

Michael Connor: 2006 was a banner year for private equity. What role do you think the private equity industry plays in the American economy and, on a broader scale, the global economy?

David Rubenstein: Well, clearly in 2006, private equity played an increasingly important role in the U.S. economy. In fact, in my view, it probably became the face of the American economy. In 2006, people tended to probably read more about Carlyle, Blackstone, Texas Pacific Group and KKR than they did about General Motors, Ford or IBM. In the old days, the latter companies would have gotten more attention; today, private equity companies tend to get the attention. I think it's been a good thing for the U.S. economy, because as private equity has been in the ascendancy, I think it's had the effect of making the U.S. economy more efficient, more productive, in focusing people on things like shareholder value and also greater efficiency.

It's not yet the case that private equity is as dominant in Europe or in Asia as it is in the United States, though increasingly it's very important in Europe. Asia is a little bit behind Europe and the United States. I think increasingly people in Europe and Asia, as well as Latin America, are beginning to say that perhaps the techniques of private equity can add value to their economy. I think they're increasingly welcoming this type of investment technique.

Why private equity? What does a private equity firm do that can't be done by a typical publicly held company?

Well it's not as if the private equity people are geniuses and the people running public companies are not similarly intelligent. Private equity, though, tends to operate in private and, as a result, private equity firms do not have to account for their company's performance on a quarterly basis, or on a monthly basis, or on a daily basis, or on an hourly basis. Very often, public companies are subject to these quarterly, monthly, daily and hourly pressures and, as a result, the private equity firms can focus more on longer term value, worrying about not short-term profits but longer term value creation—and that is something that the public companies, unfortunately in our system, do not have the ability to do as much as they used to be able to do. In other words, today the public companies are under such pressure from their shareholders, from their stock analysts, from their board members, from their employees and others, to get the stock price up every day, that it's hard to worry about longer term value creation. Private equity has the advantage of being able to do that.

David Rubenstein
The private equity industry has gotten a lot more criticism lately. BusinessWeek suggested that instead of being "turn around pros," private equity firms are often more like "fast buck artists" who take over a public company with an attitude of, "Buy it, strip it, then flip it". Carlyle's participation in the Hertz buyout is cited as an example. How do you react to that?

Well first, I think that that type of criticism is both unfair and not really that knowledgeable. On the whole, private equity firms think that it takes three to five years, or four to six years, or maybe even longer, to effectuate the value creation that you're trying to bring about and therefore when people see that in some cases, a company like Hertz was taken public relatively quickly after it was purchased, you have to actually look at what happened. In that case, yes, Carlyle with two other firms purchased Hertz from Ford, we made enormous changes in the company, we created a lot of value, and the economy was good and the travel industry was good. So there was a lot of value created in just a year.

However, when we took that company public, we sold a relatively small percentage of the company and the owners of the company who bought it originally still own about 80 percent of the company. So it's not fair to say that we have bought it, sold it, stripped it and just milked it for profits because, in truth, we own 80 percent of it and we expect to own a large percentage of it for quite some time.

In addition, I think it should be noted that many people do not distinguish between private equity funds and hedge funds. While hedge funds have a lot of virtue to them and we have a hedge fund as well, they tend to be the organizations that are trading more and that are flipping assets more readily or at least shares of assets.

Final point to be made is this, when it is said that Carlyle made a great deal of money or Blackstone made a great deal of money and we flipped an asset quickly or we made outside profits, it has to be recognized who is actually making those profits. Carlyle is really a representative of the people who we invest on behalf of and those people tend to be public pension funds. Large private equity firms in the United States and around the world get most of their money from public pension funds. So in our case, approximately 80 percent of the profits that we earn are going to our investors and probably 80 percent of those profits are going to public pension funds, which means the people who work in state governments, for example. So policemen, or firemen, or teachers, or state government employees—they are the beneficiaries of much of what we do and we think that that's a real important thing for our industry to emphasize, that we are working on behalf of many people who would not otherwise be able to realize these kind of profits if they were just investing their money on their own.

Debt levels have mushroomed at a number of companies acquired in recent private equity deals. Some analysts believe that if interest rates rise or the economy turns sour, these businesses may be hard pressed to manage their debt without major restructuring and major substantial layoffs. How concerned are you about debt levels?

Well, of course the leveraged buyout is, by definition, a vehicle where leverage is employed and leverage does help make the profits greater for the investors if the transaction works out. The key is to make sure that the transaction works out and you do not have too much debt. In the early days of the buyout industry I think the buyout professionals probably weren't as experienced in what is the acceptable level of debt, and when the economy went down, in some cases, many buyouts did not work.

Today, the situation is completely different. First, the amount of debt being put on these companies is actually less than before. In the late 80s, an average of about 7 percent equity was put into a buyout of about $200 million or more in size. Today, the average is between 32 percent and 35 percent equity. So there's much more equity underpinning these deals. Second, the debt that is provided today tends to be debt that is less expensive than debt of 10 or 15 years ago and it tends to have covenants that are much more difficult to violate and, as a result, if the economy should slow down, these deals would not likely go under or likely have covenant problems as they might have 10 or 15 years ago.

A third factor is that the buyout organizations today are large organizations. In our case, we have approximately 800 people. I think KKR, Blackstone and Texas Pacific Group are probably similarly sized in many ways and, as a result, we have an enormous number of investment professionals. So it's not a question of just buying a company hoping that leverage works out well and you sell it in a few years. Now we are, from day one, trying to add value and I think, therefore, if something were to go wrong, we have the people in our organizations that can really try to make these companies work even in a bad economic environment.

By and large, I think these deals are much safer than they were 10 or 15 years ago and I don't think that the concerns that some of the critics have are really that well-founded.

Publicly held companies are heavily regulated and require significant disclosure, and that's not true for private equity firms or the portfolio companies they acquire. How do you reassure those who might be concerned about less transparency in corporate governance and reduced financial disclosure?

A couple of points: First, while we are technically a private company, many of the things that we do are very public. Our investors, as I mentioned, are public pension funds and so what they are invested in and what their investments are doing is very often available through their own websites or through the information they distribute to their pensioners.

Secondly, very often a private equity firm has public debt even though it might be a privately owned company. The public debt requirements are such that we make filings with the SEC.

Third, many of the deals that are done today are so large and have so many people following them that I think they really are quite transparent in what is happening. I don't think there are a lot of secrets about how these companies are operating.

Another point is that private equity people are very concerned about the appropriate alignment of interests. We believe that good corporate governance will make better companies and so we try very hard to align interests throughout our economic structure when we buy a company to make sure that the managers and the employees and the investors are properly aligned. Once we take these companies public, if we do, we try to keep these same types of good corporate governance practices.

A lot of the corporate governance changes that have come about, particularly at the board level in recent years, have resulted from shareholder activism, pressure brought by individual institutional investors. When companies go private, what happens to that dynamic of shareholder pressure?

Shareholder pressure is often designed to get the highest price in a relatively short term. So very often when you have activists, they are seeking very short-term profits and they'd like the stock price to get higher. In the private setting, of course, we all want the value to be created and to be higher, but we have the luxury of waiting months or years to effectuate this value.

I don't think that the CEO who's running a company that's private feels, all of a sudden, he can take a day at the beach and not really worry about creating value. I think these CEOs are under a reasonable amount of pressure to perform, but they don't have to worry about the kind of hourly or daily pressure that you might have with a public company. But still, in time, there will be a need to show value creation and I think that the CEOs of these private companies recognize that.

In the field of corporate social responsibility, advocates say a successful business needs to be accountable to multiple stakeholders including employees, the communities in which a company operates—as well as investors. The argument is that a successful business benefits from addressing financial, social and environmental impacts. What's your view of that?

I think that's accurate. There was, I think, in the 1980s, a great deal of pressure on companies to worry only about their shareholders and the price of their stock. The law of the United States very often has been that companies that are public need to sell to the highest offerer—and maybe in many cases that's not a really attractive thing.

In some cases, the best offer for a company will not necessarily be the one that has the highest price. It would probably be a good thing if our laws were to be changed a bit to allow boards of directors to consider things like whether somebody has been a responsible owner in the past, whether they've actually created value in the past, whether they have had good labor relations in the past, whether they've been good in community support and charitable endeavors in the past. Unfortunately our laws now, particularly the laws of Delaware, really require that a corporation, a public company, when it's up for sale almost always is going to have to consider the higher price that's being offered and the other factors that I mentioned are not often being considered.

I think it would be good and better—for our country and for corporate governance—if actually boards of directors could consider more than price. Now, technically, they might be able to, but the reality is that another dollar in share price is almost certainly going to win over another buyer who might be at a lower price but has a track record that might be much more attractive as an operator of a company.

The private equity industry recently announced a formation of a trade association, The Private Equity Council, based in Washington, D.C. What prompted that?

I think it was a recognition by people in the private equity industry that we have done a less-than-desirable job of explaining to people who we are, what we do and who we represent. Many people think we're mysterious financiers, that we really don't care about good corporate governance, that we don't care about good labor relations, we don't care about good community relations, and all we care about is flipping a company and making a quick profit. The truth is just the opposite. So I think we need to do a better job of explaining what we do, who we are, and who we represent. I think the Private Equity Council will not only be able to let members of Congress and the administration, but also foreign governments, know what it is that private equity is doing and what the benefits of private equity can bring to an economy.

What does the future look like? Are we likely to see more private equity deals in the next 12 months, bigger private equity deals in the next 12 months?

I think there are several things for the future. One, I think private equity will increasingly be recognized as not being an alternative investment mechanism but a mainstream investment mechanism. In other words, one that everyone who has an investment portfolio should participate in. Secondly, I think you'll see deals getting a bit larger than they have been, though they are quite large now. Third, I think you'll see much more money being invested in emerging market private equity opportunities, because I think, increasingly, people see emerging market opportunities being quite attractive. Fourth, I think you'll see many more opportunities, or many more situations, where hedge funds will be competing with private equity firms. In some cases, I think you'll see hedge funds and private equity firms working together to buy companies and to create value.
On the whole, I would say the private equity industry's future is probably stronger in the future than it has been in the past. In other words, we've had a very good several years in private equity, but I think the best is really ahead of us.

Note: This transcript was edited for style and clarity.


CRO POV: Money Making Not the Root of All Evil
Submitted by Danielle on Mon, 2007-03-05 15:00. POV

Corporate responsibility and profitability can co-exist.

By Jay Whitehead

I was caught completely flabbergasted by American Prospect Editor Robert Kuttner's editorial "Beware of Corporate Do-Gooding" this past Sunday in The Boston Globe. In a sophomoric search for attention, Kuttner wrote that any and all responsible behaviors by corporations should be waived off as cynical diversionary tactics of profit-hungry devils. "Whenever hugely profitable corporations mount a charm offensive, keep your hand on your wallet," Kuttner wrote.

This profit-paranoid conspiracy theorist then went on to list several corporate efforts that should be seen as nothing but the black art of greed: Wal-Mart's Sustainability 360 program, universal health care proposal, and diversity efforts; Astra-Zenica's campaign to simplify Medicare reimbursement; TXU's cancellation of coal-fired generating plants; and the Hedge Funds Care efforts from the hedge fund industry. Kuttner's rant reminds me of comedian Mike Myers' line in his Austin Powers movie, "There is no pleasing you." It also reminds me of dozens of college-day arguments I had with ivory tower academics with no interest in participating in the real world.

American Prospect, with an audience of 55,000, was founded in 1990 by Kuttner and the outspoken former Clinton administration Labor Secretary Robert Reich. The magazine identifies its readers as orthodox liberals, in the Great Society, anti-Vietnam War, Ralph Nader anti-corporate crusader tradition. But wait. Kuttner's outburst puts him on the very fringes of civil society—outside the world where most of us live and work. Hey, I work for a corporation. And my clients and members are corporations…in fact, my best friends and customers run the biggest corporations on earth, the Russell 1000, employers of nearly a quarter of all working Americans.

But because my clients and I seek profit and at the same time embrace the very changes in corporate behavior that Kuttner vilifies, that make us enemies of Liberal causes. How could that be? I thought that good governance, sustainability, corporate social responsibility, corporate citizenship, diversity and enlightened stakeholder relations were the very essence of Liberal thought. corporate responsibility is, in all its flavors, enlightened competition.

Communicating with several American, Canadian and European corporate colleagues over the weekend, I mentioned Kuttner's poisonous position piece. One wrote that, "it sounds like the death rattle of a flavor of intellectual arrogance that is rapidly dying, both on campus and off."

I agree. Kuttner's argument ultimately leads to the conclusion that to do anything to compete for advantage and profits is essentially evil. I know from direct experience that Wal-Mart, Astra-Zenica, and hedge funds are all doing what they are doing because they truly believe that enlightened competitors will have a long-term advantage, even if it costs more in the short run.

The corporate execs involved in today's corporate responsibility programs believe in their missions in the same way my father, who in the 1960s and early 70s ran the San Francisco Public Schools' busing for school desegregation program, believed in his Great Society, essentially liberal mission. In every fiber of his being, he believed that racially integrated public schools made better kids and a better America. He also championed sex education in the schools as a way of reducing teen pregnancy. During his life, he was honored often as an enlightened educator. Both programs gave kids a competitive advantage. But busing and sex education also gave profits to its advocates—school bus companies, school administrators, sex education teachers and manual publishers.

Is a program, corporate or public, essentially evil if, while doing good, it delivers a profit to its backers? In Kuttner's academically arrogant world, is profit inherently bad?

In the same editorial, Kuttner also addressed Sirius Satellite Radio's CEO Mel Karmazin's congressional testimony defending its proposed merger with XM. Apparently Kuttner does not believe that any merged company would be better for consumers, since the result might mean more profits. He would rather that shareholders continue to waste billions of dollars to support two nearly identical pay-to-listen services, that compete with a product that is free. In Robert Kuttner's world, waste is good, profit is bad, and enlightened corporate practices should be banned. "When profit becomes the sole purpose of society," Kuttner wrote, "it can drive the economy right off a cliff."

I would counter with this: The corporate responsibility movement is about the death of arrogance in all its forms. Corporate responsibility fans cheered when the above-the-law arrogance of Dennis Kozlowski and Jeffrey Skilling sent them both to prison. Corporate responsibility proponents support dogged regulators who pursue their above-it-all targets. Corporate responsibility advocates applaud when a company's corporate social responsibility (CSR) report or an activist investor unveils a need for a change in unaccountable management, or when a non-governmental organization (NGO) batters a company into changing abusive practices or when some Internet-age crusader discovers a bribe or arrogant anti-diversity policies. Similarly, corporate responsibility supporters will decry academics who cannot understand that doing well and doing good can and do happily co-exist.

If you are true to your academically arrogant profit-paranoia, Robert Kuttner, we urge you to stop charging American Prospect magazine advertisers and subscribers immediately. After all, your profit is obviously undoing any good you might be doing.

[CSR newsclip] CRO POV: CR Offense vs. Defense -- The surprising corporate responsibility impact of private equity


CRO POV: CR Offense vs. Defense
Submitted by Danielle on Tue, 2007-02-27 14:57. POV

The surprising corporate responsibility impact of private equity

By Jay Whitehead

Last week's big sustainability business headline was that Texas' largest utility, TXU, was pursuing a heavy lobbying program to get 11 new dirty coal-fired plants approved before the Bush administration leaves office in 2008. The news generated a firestorm among sustainability and environmental activists, lawmakers and concerned citizens. Even rival utility leaders such as Duke Energy's CEO Jim Rogers were outspoken in their criticism of the cynical move.

Enter an unexpected group of white hats. Sunday, Feb. 25's The New York Times front page announced that a proposed $45 billion buyout by private equity players Kohlberg Kravis Roberts and the Texas Pacific Group would dump plans to build eight of the 11 plants.

What? Why would a group of the world's most profit-hungry private equity guys take a huge money-making opportunity off the table? Has the world gone mad?

In a word, no. But this announcement—potentially the largest leveraged buyout ever—represents a sea change in large investors' attitudes. The shift has to do with three interrelated factors, at least two of which are directly related to the positive impact of the corporate responsibility movement.

The first factor is the law of big numbers. A buyout this large is too big to flip fast. Typically, when private equity guys take a public company private, the plan is to spiff its balance sheet up, grow it and then quickly take it back to the public markets for a rapid return-on-investment. But TXU is just too big to do that with. It is a long-term hold. We may not see it back on the public markets for a decade or longer. As a result, the investors' thinking has to be more than short-term in nature.

Second, being a company responsible in efforts to abate climate change will be a marketable strategy long into the future. Goldman Sachs, the investment bank representing the buyers, has long been a climate change activist. The New York Times reports that the investment firm even sends its bankers home at night in hybrid limousines. As a result, the company's long-term value would be hurt by a short-term attempt to grab profits that would harm its sustainability profile.

Third, capital hates regulatory uncertainty. Were the eight dirty coal plants to be built, they would face an uncertain regulatory future. They may be required to execute expensive environmental remediation. Or worse yet, they could face mandatory shut-down prior to the end of the plants' effective lives.

The fact that private equity, which has generated insane wealth for its practitioners, is behind a corporate responsibility-friendly practice represents a new chapter in the history of modern capitalism. It represents the tipping point from "defensive" corporate responsibility to "offensive" corporate responsibility.

"Defensive" corporate responsibility had to do with compliance and governance, and was driven in the U.S. by Sarbanes-Oxley, federal sentencing guidelines and state regulations such as California's AB 1825, which requires employers to execute ethics and compliance training for employees. Today, corporate spending on this sort of "defense" represents over $20 billion dollars to nearly 400 professional service providers.

But the new "offensive" corporate responsibility, in which companies use corporate responsibility practices to raise capital, sell products or recruit talent, promises to be much bigger. If TXU's deal with KKR and TP goes through, it will create a much larger market for "offensive" corporate responsibility practices, solutions and services. And a much larger set of career and professional opportunities for CROs.

[CSR newsclip] TXU Takeover: New Owners and New Environmental Policies?


TXU Takeover: New Owners and New Environmental Policies?
Submitted by Danielle on Tue, 2007-02-27 22:16. Environment

What could be the largest private equity deal in history includes a pledge to clean up the company's environmental policies.

By Margo Alderton

On Sunday, Feb. 25, a private equity consortium announced a $45 billion bid for Texas utility company TXU Corp. Included in the proposed buyout are plans to increase environmental measures, abandon the building of eight of 11 new coal plants, and cut TXU's carbon-dioxide emissions to 1990 levels by 2020.

TXU has become highly profitable since a 2004 turnaround. However, its environmental practices have brought it under repeat fire from consumers, local communities, politicians (including the mayors of Dallas and Houston), and environmental and public watchdog organizations such as Ceres, Environmental Defense, Natural Resources Defense Council and Public Citizen.

The bid by private equity groups Kohlberg Kravis Roberts (KKR) and Texas Pacific Group (TPG) is backed by Goldman Sachs, which, according to an article in The New York Times, helped broker an agreement with environmental groups Environmental Defense and Natural Resources Defense Council and sought their support for the transaction. Goldman Sachs has been one of the most proactive firms on Wall Street about climate change.

The Ceres investor coalition had issued a report Sunday about the financial risks that TXU investors face from the company's original proposal to build new coal-fired power plants. In a press release, Mindy S. Lubber, President of Ceres and Director of the $3.7 trillion Investor Network on Climate Risk noted that "We are encouraged by recent news that TXU's potential buyers are focused on mitigating these financial risks and scaling the project back."

"If private equity investors buy TXU, it opens a new era in which private equity firms must evaluate climate risk just as public investors have been," said David Gardiner, whose firm, David Gardiner & Associates, authored the report. Others on Wall Street seem to agree. Financial research firm Innovest Strategic Value Advisors and the National Environmental Trust (NET) held a press conference the day after the announcement to highlight how the plans to reduce TXU's coal power plants may affect other firms with plans to build multiple coal-fired power plants.

Although the takeover and the accompanying environmental terms are not yet finalized, in an interview with Dallas Morning News, James D. Marston, Regional Director for Environmental Defense in Texas, noted, "It really is, I think, a watershed moment in America's fight against global warming."

To learn more about the TXU deal, visit:

[Energy newsclip] Coal's future hinges on carbon capture, sequestration -- report


Coal's future hinges on carbon capture, sequestration -- report

Greenwire, 14 March 2007 - Coal can stay king in a world with carbon dioxide controls, but only with wide deployment of technologies to capture and bury carbon that will raise the costs of the abundant power source, according to a major new study by the Massachusetts Institute of Technology.

"From the point of view of coal use in a carbon-constrained world, the demonstration of the effective ability to capture and sequester carbon is key to the use of coal going forward," said John Deutch, co-chair of the MIT panel that produced the report, at the report's release today.

Coal use is expected to increase, due to its abundance and low costs, and controlling CO2 emissions from coal-fired power is considered vital to addressing global warming.

But the report finds that levels of worldwide coal use in a carbon-constrained world depend on successful deployment of capture and storage. Global coal use in 2050, in a world when there is a price on carbon emissions, could even drop without capture and storage, under one of the various scenarios modeled in the study.

The study finds that successful capture and storage will inevitably add costs, estimated to be about $25 per ton for the capture and another $5 for transport and storage. A worldwide price on emissions of $30 per ton would offset these costs.

The study also finds that current DOE and private sector programs are "completely inadequate" to providing timely, large scale integrated demonstrations of carbon sequestration.

The study also explores the cost of various technologies, finding that carbon capture and sequestration adds costs to all plant types, but that integrated gasification combined cycle (IGCC) plants are cheaper than pulverized coal plants when this is included. Deutch noted there is less of an "efficiency penalty."

The authors stress, however, that carbon capture must also be demonstrated on a range of power plant technologies. "It is critical that the government RD&D [research, development and demonstration] program not fall into the trap of picking a technology 'winner,'" the report states.

Coal currently provides half of the electric power in the United States.

Another key finding is that the notion of building plants to be "capture ready" will be costly -- or, as the report puts it, "unlikely to be economically attractive."

"The concept of a capture-ready IGCC or pulverized coal plant is as-yet unproven and unlikely to be fruitful," the report states.

The study comes as lawmakers are grappling with how to curb emissions but also as a large number of traditional coal-fired power plants are at various stages in the planning process.

The MIT panel warns of a "perverse incentive" for investment in various types of plants without capture with the expectation that their emissions may be "grandfathered" by the granting of free emissions allowances in a future regulatory program.

"Congress should act to close this 'grandfathering loophole' before it becomes a problem," the report says.

Deutch, speaking today, noted the the importance of eventual enactment of controls in China, India and other developing economies in order to help curb emissions. China by some estimates will overtake the United States as the world's largest emitter in several years.

"We believe it is going to be a very difficult matter to get China, India and other emerging economies to participate in a carbon constrained world," he said. "There is no chance of making progress on this until the United States has a carbon control policy of its own," he added.

[Energy newsclip] UK takes lead on climate change


UK takes lead on climate change

EurActiv.com, 14 March 2007 - In the wake of the EU's 'Green' Spring Summit, the UK government has announced plans for binding five-year climate-change budgets, with the objective of reducing greenhouse-gas emissions 60% by 2050.

Background

Climate change has taken the political decision-makers' agenda by storm after the Stern Report on the economics of climate change and Al Gore's high-visibility An Inconvenient Truth film and campaign. Last week (8-9 March), EU heads of state and government commited themselves to reducing European CO2 emissions by 20% in 2020 and to go even further if the US and other economic powers are willing to follow suit.

Issues

On 13 March 2007, UK Secretary of State for Environment David Miliband laid out his government's plans to reduce greenhouse-gas emissions 60% by 2050. The draft Climate Change Bill includes the following key points:

  • Binding targets to reduce emissions by 60% in 2050 and between 26-32% for 2020;
  • binding five-year "carbon budgets", set 15 years ahead to provide clarity for policymakers and certainty for businesses;
  • setting up a Committee on Climate Change, giving advice and guidance to the government, and;
  • annual and transparent reporting on progress to the national parliament.
The draft bill is subject to public consultation and will have to be ratified by parliament.

Positions

British business association CBI welcomed the government's climate-change proposals. "This bill is a big step forward in combining the two things we really need: long-term clarity on policy direction and flexibility in its delivery," said CBI Director-General Richard Lambert.

UK Friends of the Earth Director Tony Juniper also expressed satisfaction but demanded even bigger cuts ("at least 3% every year") and the inclusion of international aviation and shipping emissions.

The UK Conservative Party , which had proposed taxation on aviation and personal flights a day earlier, demanded annual reduction targets instead of five-year goals.

Latest & next steps

A revision of the 2003 biofuels directive is scheduled to be proposed, together with a new framework directive on renewables, later in 2007 said Ferran Tarradellas Espuny, the Commission's energy spokesman.

The timing of the new proposal will depend on the outcome of the March summit of EU leaders, which will decide on the fate of the Commission's energy package. Depending on this, the Commission could put forward a proposal in July or September, Espuny indicated.

Links

EU official documents

Governments EU actors positions

[CSR newsclip] Business, Environmental Protection and Poverty Reduction Come Together


Business, Environmental Protection and Poverty Reduction Come Together

UN Chronicle Online Edition, 13 March 2007 - Wind farms in Tunisia, organic roses in China and mangrove preservation in Indonesia are among the results when the desires to earn a living and preserve the environment are combined. At a panel organized by the Equator Initiative of the United Nations Development Programme (UNDP), held at Fordham University in New York City on 7 March 2007, speakers discussed ways to harness market forces to protect the ecosystems and reduce poverty.

"Ecosystems are critical to people's livelihoods and they are also profitable, and they should be invested in as development infrastructure, just as you would invest in bricks, pipes and dams", said John Waugh of the World Conservation Union (IUCN). He explained that mangrove swamps in coastal areas, teeming with vegetation and marine life, provide local communities with economic opportunities for fishing and tourism, and much-needed buffers for floods, storms and tsunamis. The IUCN "Mangroves for the Future" initiative works with 140 communities, which were affected by the 2004 Indian Ocean tsunami, to preserve mangroves and ensure their sustainable use by local populations. "Many people's reaction to the tsunami was to say, 'we'll build a sea wall so this will never happen again'", said Mr. Waugh. "These areas should be preserved so that they can protect coastal settlements from extreme weather and support people's livelihoods."

"Demand for organic foods is expanding between 5 and 20 per cent annually in the United States and Europe, the green building sector is worth $ 38 billion and growing, and sustainable tourism is growing twice as fast as normal tourism", said Virginia Barreiro of the World Resources Institute. Her programme partners with small and medium-sized enterprises, which comprise 60 to 80 per cent of employment and 60 per cent of gross domestic product worldwide in developing countries, to create business plans, partner with investors and gain access to markets in both developed and developing countries. These innovative "green" businesses, including those that produce hybrid electric busses in Brazil, organic roses in China or natural pesticides in Mexico, provide employment and protect the environment by following sustainable practices. With a 98-per cent success rate, Ms. Barreiro said these firms were proving that taking care of the environment can make good business sense.

"Our job is to channel funds into clean energy development", said Yannick Glemarec of the UNDP Global Environmental Facility (GEF). "We should see a huge market for wind farms in Tunisia", he said, explaining that these farms could supply electricity within Tunisia and sell energy to Europe. This project can gain financing through the clean development mechanism (CDM), under which an industrialized country can invest in clean technology projects in developing countries, thereby reducing its obligations under the 166-member Kyoto Protocol, which aims to reduce global carbon dioxide emissions worldwide. UNDP is helping develop a wind map to identify where wind farms should be located, said Mr. Glemarec, and is helping the Tunisian Government create national authorities to manage such projects.

The prospect of expanded carbon markets is pushing the private sector to re-examine carbon-intensive businesses, said Mr. Glemarec. "Forward-looking investment firms like Goldman Sachs are seeing that investing in a dirty utility company will not be a good idea if you have to pay $50 for a ton of carbon in a few years."

"Investment in green business is growing like never before", said economist Lucas Black, formerly with Deutsche Bank and currently working for UNDP. He noted that New Energy Finance, a London-based research firm, estimated that private sector investment in clean energy would be larger than ever in 2007 at $63 billion. Meanwhile, decreasing costs for clean energy are making these sources more viable, he said, pointing out that the cost of wind-power generation has come down from 8-10 cents to 3.5-4.0 cents per kilowatt hour since 1990, because of better turbines and higher volumes of energy produced. Mr. Black said that Governments are helping create the regulatory framework for growth, with 49 Governments establishing targets for renewable energy production, according to a Goldman Sachs report. Environmentally-friendly business projects, he thinks, will be "coming up to speed in terms of viability and profitability" in the coming years. "It is my hope that this new frontier is opening up and will provide huge opportunities for green business.

[CSR newsclip] Consumer electronic manufacturers including Sony, Nokia and HP, and NGOs ranging from Greenpeace to Friends of the Earth, have called on the Commission to take action against 11 member states that have transposed the WEEE directive without making producers fully responsible for the recycling of electrical and electronic products.


Member states urged to take action on 'e-waste'

EurActiv.com, 12 March 2007 - Consumer electronic manufacturers including Sony, Nokia and HP, and NGOs ranging from Greenpeace to Friends of the Earth, have called on the Commission to take action against 11 member states that have transposed the WEEE directive without making producers fully responsible for the recycling of electrical and electronic products.

Background

The Directive on Waste from Electrical and Electronic Equipment (WEEE) aims to increase the reuse, recycling and recovery of waste from a variety of consumer products ranging from light bulbs to PCs. Electrical equipment is one of the fastest- growing waste streams in the EU.

The Directive aims to create incentives for producers to take the initiative to improve the design of their products and make them easier to recycle.

In that regard, article 8.2 of the directive requires: "That each producer provides an appropriate financial guarantee for the management of WEEE," ie the producer is fully responsible for the recycling of its products. However, it only refers to products sold after 13 August 2005; products sold before this date are known as "historical waste" and are not the subject of debate.

Issues

The joint statement says that although 12 member states have incorporated the provisions corresponding to Article 8.2 correctly, 11 (Bulgaria, Denmark, Estonia, Finland, France, Greece, Latvia, Portugal, Slovenia, Spain and the UK) have failed to do so.

Instead, these countries have made producers jointly responsible for the recycling of their products, with the effect that the incentive for them to improve their designs has been diminished, according to the joint statement.

Individual producer responsibility is seen as an important means of encouraging competition between companies and, in turn, developing innovations that will reduce the environmental impact of products at the end of their life-time. This is because Article 8.2 allows producers to benefit from lower costs if they design products that are easier to recycle.

However, under the joint-responsibility system, producers act collectively to dispose of their electrical products for recycling, meaning that companies cannot be responsible for their own individual branded product. This has raised the concern that because producers acting under joint responsibility will not be collecting equipment they placed on the market in the first place, there will be no incentive to make their products easy to recycle.

At the same time, larger companies that do want to make products that can be recycled easily fear that the benefits of their environmentally friendly products will be enjoyed by rivals who have not implemented similar policies.

Paragraph

The signatories of the statement say that the failure to make producers fully responsible "jeopardises the attainment of the Directive's objectives, which means that companies will not be financially rewarded for making products easier to recycle", since "differences in national transposition cause different legal and financial exposures for the actors on the EU market".

Tom Wells of electronics manufacturer Electrolux told letsrecycle.com that, with the tight margins within the electronics sector, the costs of recycling equipment can be almost as high as a company's entire profits.

He said that designing products to be more recyclable would be a "huge competitive advantage" in the electronics market, but that under the current form of the WEEE Regulations, companies operating in the UK cannot take advantage of that.

Links

[CSR newsclip] Asia's environmental woes threaten economic growth: experts


Asia's environmental woes threaten economic growth: experts

AFP, 8 March 2007 - Asia's stellar economic growth could come to a grinding halt unless governments tackle environmental problems arising from the region's rapid industrial development, the UN and the OECD said Thursday.

The the Asia-Pacific region, which accounts for 25 percent of global economic output, is expected to grow 7.3 percent in 2007 after last year's 7.1 percent, the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) said.

"The rising economic powerhouses of China and India are driving this impressive high economic growth," Kim Hak-Su, executive secretary of UNESCAP, told at a two-day meeting on Asia's economy and the environment.

"However, such growth is driven by high resource consumption accompanied by excessive pollution and waste generation in a region with the least ecological carrying capacity," he said.

While economic wealth has sharply reduced poverty in Asia, the region's 'grow first, green later' patterns could "bring continued economic growth to a grinding halt," Kim said.

Candice Stevens, sustainable development advisor of the Paris-based Organisation for Economic Cooperation and Development (OECD), said Asia was also faced a growing income gap between the rich and the poor.

But she said Asian governments were aware of social and environmental problems and were working on eco-efficiency growth models.

"I think Asian countries and governments are now trying to integrate environmental and social concerns more into their growth strategies," Stevens said.

Kim said China, one of the world's fastest-growing economies, has acknowledged its 'grow first' economic pattern can no longer be sustained in the short term and called on others to tackle dirty air, waste and scarce water supplies.

"We must act now, taking substantive steps to harmonize economic growth with the environment and its limited natural resources," he said.

While lauding Asia's economic success, Kim also stressed that the region was still home to two-thirds of the world's poor, with 40 percent of the region's 2.5 billion population still living on less than two dollars per day.

"A sustainable development strategy must be at the core of every country's economic growth plan," he said.

[Energy newsclip] Wal-Mart Joins Uncle Sam On 'Green' Bandwagon


Wal-Mart Joins Uncle Sam On 'Green' Bandwagon

By Chris Murphy,
02:44 PM ET, Mar 14, 2007




Still think this "Green Computing" is a lot of tree hugger blather you can safely ignore? This week, Wal-Mart joins the U.S. government in embracing standards for what a makes an earth-friendly computer. This drumbeat's going to keep getting louder.

Wal-Mart has set the criteria it'll use next year to offer rankings of how environmentally friendly various electronic products are. As K.C. Jones reports, it'll create "scorecards" for factors such as energy efficiency, durability, and package size. Wal-Mart also will consider what ends up in the dump—such as whether the product can be upgraded and recycled, and whether it contains hazardous materials.

This points to a huge change coming in Green Computing: it's going to be a whole lot easier to measure whether your computers are earth friendly. Wal-Mart's market clout means what it does tends to ripple through the industry. And more importantly, there are other measurements coming, as our Green Computing in-depth article this week notes.

The EPA will release new Energy Star standards for PCs by July, moving the bar much higher than today's 5-year-old standard. The other key standard is the EPEAT, created by the the Green Electronics Council. President Bush has ordered government agencies where possible to to buy equipment covered by EPEAT, which incorporates the Energy Star standards and the tough EU limits on hazardous materials.

Businesses don't want to spend a ton of time figuring out what specs they need to include to buy an earth-friendly machine. But if they can work off established standards such as the Energy Star and EPEAT, they probably will, since it's likely to save them money in power consumption. Believe it, green is good.


For other Green Computing news this week alone, check these links:

HP Unveils 'Green' PCs (InformationWeek)
Start-Up Fervor Shifts to Energy in Silicon Valley (New York Times)
TechNet rolls out green tech agenda (ZDNet Between The Lines)
GE chief: All engines go for alternative energy (Cnet)

[Energy newsclip] US car chiefs pledge to fight global warming; BMW chief calls EU's CO2 target 'impossible'


US car chiefs pledge to fight global warming

By Edward Luce in Washington

Published: March 15 2007 02:00 | Last updated: March 15 2007 02:00

The chief executives of America's four largest car companies said yesterday they would co-operate with an ambitious legislative plan to tackle global warming and agreed on the merits of devising a US-wide carbon emission "cap and trade" regime.

Their pledge, which took place in a rare joint appearance before Congress, marked a significant step forward for the new Democratic majority on Capitol Hill, which aims to draft America's first national global warming legislation in the next few months.

The leaders, which included the chief executives of Ford, DaimlerChrysler, Toyota (North America) and General Motors, told lawmakers they would accept a US economy-wide strategy to cut carbon emissions as long as it did not disproportionately target car producers.

John Dingell, chairman of the committee, who represents a district in Michigan that includes the headquarters of Ford Motor and who has been one of the most sceptical Democratic voices in the past, said: "Ladies and gentlemen. Hannibal is at the gates. The old debate is no longer sufficient. We need to talk about what can be done and what will work."

In spite of a past record of scepticism on climate change - particularly by Ford and GM - all four executives politely declined to agree with a suggestion by Joe Barton, a senior Republican member, that man-made carbon emissions weretrivial.

Rick Boucher, the chairman of the subcommittee that is drawing up the bill, said lawmakers aimed to devise a "mandatory programme [to reduce emissions]" that would "spread the burden equally across all sectors of the economy". It would be drafted by Sep-tember and passed in 2008.

"What Mr Boucher has just outlined would literally be a legislative miracle of biblical proportions," said Mr Barton. The Democratic plan, which goes much further than the voluntary targets announced by George W. Bush in his State of the Union address in January, would mark the first attempt by Congress to tackle climate change and impose mandatory targets on the US economy.

In the past 18 months a number of US states, led by California, have taken the lead in drawing up tougher fuel economy standards for vehicles and emissions reduction goals for power utility companies. In January Mr Bush proposed a 4 per cent annual increase in corporate average fuel economy (Cafe) standards over the next decade.

Yesterday the four motor industry executives differed on the degree to which they would accept tougher fuel economy standards for vehicles under the notoriously complex Cafe regime. Rick Wagoner, chief executive of GM, said Cafe had failed to achieve its purpose of reducing US dependence on foreign oil and reducing domestic petrol consumption.

"It is time to move away from approaches that divert resources, to solutions that actually work," he said.

The US has the lowest fuel-economy standards for vehicles in the developed world.

Next week Al Gore, former US vice-president, whose film An Inconvenient Truth won two Oscar awards, will testify before Congress on climate change.


BMW chief calls EU's CO2 target 'impossible'


David Gow in Munich
Thursday March 15, 2007

The Guardian

The following correction was printed in the Guardian's Corrections and clarifications column, Friday March 16 2007

In the article below, a missing figure gave the impression that the new diesel Mini Cooper would use 4.4 litres of fuel per kilometre. That should have been per 100km. This has now been amended.


Norbert Reithofer, BMW's new chief executive, has condemned European commission plans to impose a limit of 130g a kilometre on CO2 emissions from all new cars by 2012 as "physically impossible" and "economically unsound".

Article continues



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The German car industry has led the campaign against the stringent controls proposed by Stavros Dimas, EU environment commissioner. Politicians claim these could wipe out brands such as Mercedes-Benz, Audi, Porsche and BMW. Mr Reithofer said different emission limits should be applied to different vehicle sizes. Small cars, he said, made up most of the market and would have to make a proportionately greater contribution. But BMW, which claims to have cut fuel consumption across its fleet by 30% from 1990 to 2005, said 33%-40% of all its cars - excluding Rolls-Royce - would emit less than 140g of CO2 by late 2008. This is the European car industry's voluntary target but the EU now says this is inadequate.

The German firm is launching a new diesel Mini Cooper from its Oxford factory this year and, Mr Reithofer said, this would use just 4.4 litres of fuel per 100km and emit 118g/km of CO2. It also plans to produce 100 of its hydrogen-powered Seven series cars and offer a hybrid fuel/electric model developed with DaimlerChrysler by 2009.

BMW, which made pre-tax profits of €4.12bn (£2.8bn) on sales of 1.37m vehicles last year, expects to beat both records in 2007, Mr Reithofer said. Sales of Minis are likely to top 200,000 this decade. The group insisted it could meet the expected rise in demand by expanding factories and increasing productivity by up to 10% a year. Frank-Peter Arndt, head of production, said BMW may build a second Chinese plant next to its Shenyang factory.

· General Motors, the world's largest carmaker, underlined its recovery from near-bankruptcy with a $950m (£490m) net profit in the final quarter of 2006, giving a full-year loss of $2bn compared with one of $10.4bn in 2005.

[CSR newsclip] After the boom, high-tech gives way to 'clean tech'


International Herald Tribune
After the boom, high-tech gives way to 'clean tech'
By Matt Richtel
Tuesday, March 13, 2007

 

SAN FRANCISCO: Silicon Valley's dot-com era may be giving way to the watt-com era.

Out of the ashes of the Internet bust, many technology veterans have regrouped and found a new mission in alternative energy: developing wind power, solar panels, ethanol plants and cars that run on hydrogen.

It is no secret that venture capitalists have begun pouring billions into energy-related start-ups. But that interest is now spilling over to many other denizens of Silicon Valley — lawyers, accountants, recruiting and public relations firms, all developing energy-centric practices to cater to the cause.

The best and the brightest from leading business schools are pelting energy start-ups with résumés. And, of course, there are entrepreneurs from all backgrounds — but especially former dot- commers — who express a sense of wonder and purpose at the thought of transforming the $1 trillion domestic energy market and saving the planet at the same time.

"It's like 1996," said Andrew Beebe, one of the remade Internet entrepreneurs. In the boom, he ran Bigstep.com, which helped small businesses sell online. Today he is president of Energy Innovations, which makes low-cost solar panels. "The turret of the Valley has found a new hot spot."

Beebe said the valley's potential to generate change was awesome. But he cautioned that a frenzy was mounting, the kind that could lead to overinvestment and poorly thought-out plans.

"We've started to see some of the bad side of the bubble activity starting to brew," Beebe said.

The energy boomlet is part of a broader rebound that is benefiting all kinds of start-ups, including plenty that are focused on the Web. But for many in Silicon Valley, high-tech has given way to "clean tech," the shorthand term for innovations that are energy efficient and environmentally friendly. Less fashionable is "green," a word that suggests a greater interest in the environment than in profit.

The similarities to past booms are stark but not unpredictable. The valley is a kind of renewable gold rush, a wealth- and technology-creating principle that is always looking for something around which to organize.

In this case, the energy sector is not so distant from other Silicon Valley specialties as it might appear, say those involved in the new wave of start-ups. The same silicon used to make computer chips converts sunlight into electricity on solar panels, while the bioscience used to make new drugs can be used to develop better ethanol processing.

More broadly, the participants here say their whole approach to building new companies and industries is easily transferable to the energy world. But even those most involved in the trend say the size of the market opportunity in energy is matched by immense hurdles.

Starting a clean technology firm is "not like starting an online do-it-yourself legal company," said Dan Whaley, chief executive of Climos, a San Francisco company that is developing organic processes to remove carbon from the atmosphere. "Scientific credibility is the primary currency that drives the thing I'm working on."

Just what that thing is, he will not specify. His start-up is still in so-called stealth mode, and Whaley declined to get into details about its technology for competitive reasons. His advisory board includes world-class scientists, among them his mother, Margaret Leinen, the head of geosciences for the National Science Foundation.

In the last Silicon Valley cycle, Whaley's help came from his father — and his father's living room. That's where in 1994 Whaley did some of the early work on GetThere.com, a travel site that went public in 1999 and was bought by Sabre for $750 million in 2000.

This time around, entrepreneurs say they are not expecting such quick returns. In the Internet boom, the mantra was to change the world and get rich quick. This time, given the size and scope of the energy market, the idea is to change the world and get even richer — but somewhat more slowly.

Those drawn to the alternative energy industry say that they need time to understand the energy technology, and to turn ideas into solid companies. After all, unlike in the last Internet boom, the companies will need actual manufactured products and customers.

"There are real business models and real products to be sold — established markets and growing economics," said George Basile, who has a doctorate in biophysics from Berkeley and specializes in energy issues. There are similarities, he said, but "you can't draw a direct parallel to the dot-com era."

The sudden interest of lawyers, accountants and other members of the wider valley ecosystem strikes some as opportunistic.

"There's a large amount of bandwagon-jumping right now," said Mark Hampton, chief executive of Blanc & Otus, a technology-centric public relations firm. Hampton thinks of his company's energy practice, created in 2004, as being somewhat seasoned. Still, he understands the interest of relative newcomers: "There's a huge opportunity."

They are all, plainly, following the money. In the first three quarters of 2006, Silicon Valley venture capital firms put $474 million into a broad range of startups in energy storage, generation and efficiency, according to Cleantech Venture Network, an industry trade group. Energy was by far their fastest- growing area of interest, and the amount was on par with what was put into telecommunications and biotechnology.

Yet the amount of money involved is still relatively small compared with the boom years. Overall venture funding last year was still less than a third of the nearly $34 billion venture capitalists invested in the region in 2000, the peak of the bubble.

"This is not 2000, it doesn't feel like 2000 on the street," said Stephen Levy, director of the Center for Continuing Study for the California Economy, based in Palo Alto, California. But, he said, "there's no doubt there's a buzz."

Levy said that the valley was getting a lift from the public's interest in finding new energy sources and from government involvement in creating subsidies and policies that promote such sources. Still, he said, the new ventures are clearly risky.

"We'll have a sense very quickly — within two to four years — whether any of this venture capital has produced any products or services that are market- worthy," Levy said.

Apart from the profit motive, many say more unselfish concerns are driving the interest in energy. Investors and entrepreneurs say alternative energy will clean up the world and create energy independence for the United States.

"The résumés I'm getting now are almost identical to the ones I got seven years ago for CarsDirect.com," said Larry Gross, chief executive of Altra, a company he founded in Los Angeles that is producing ethanol and developing fuels made from plant material. "The quality, the schools, the work experience, the enthusiasm for wanting to fix something."


Notes:

[Energy newsclip] Curbs will only work if applied internationally, companies warn: Businesses welcomed the greater certainty about carbon dioxide emissions controls but many said the measures needed to be applied internationally if they were to work.


Curbs will only work if applied internationally, companies warn

By Ed Crooks and Fiona Harvey

Published: March 14 2007 02:00 | Last updated: March 14 2007 02:00

Businesses welcomed the greater certainty about carbon dioxide emissions controls but many said the measures needed to be applied internationally if they were to work.

Under the climate-change bill, a new committee would oversee cuts in greenhouse gas output and propose fiscal and regulatory measures to help meet five-year emissions reduction targets.

Richard Lambert, director-general of the CBI employers' group, said: "This bill is a big step forward in combining the two things we really need - long-term clarity on policy direction and flexibility in its delivery."

Energy companies have been pressing the government to set out the likely regulatory framework after 2012, when the second phase of the European Union's emissions trading scheme expires, to give them the confidence to make long-term investment decisions.

Eon UK, the subsidiary of the German energy company, said: "We support the objectives of the bill to demonstrate international leadership and to help create a predictable long-term policy framework for investment."

However, it warned: "Setting targets does not of itself deliver them and it will be necessary to ensure that the government has a credible set of policy measures which give confidence that these targets can be achieved in an equitable manner across the economy as a whole."

Centrica, owner of British Gas, said there was still a need for EU clarity on the future of emissions trading. It called for commitments to auctioning the permits rather than giving them away as in phase one of the scheme, which helped high-emissions industries, and to steady cuts in the emissions allowed over time.

Business groups said energy-intensive businesses would relocate outside Europe if the cost of CO2 emissions was set too high. The EEF manufacturers' group said the measures should be accepted only if they took into account factors such as international competition and the administrative burden.

Businesses were quick to react to the plans. Responding to a pledge by Gordon Brown, chancellor, to phase out incandescent lightbulbs, which waste 95 per cent of their energy in heat, Currys said it would stop selling them once its stocks expired. The electrical retailer said it had seen a 20-fold increase in sales of energy-efficient bulbs in the past year.

Royal Philips Electronics said more than 130m incandescent bulbs were sold in the UK in 2005-06. If they had been replaced with more energy-efficient bulbs, electricity bills could have been cut by £460m and 1.9m tonnes of CO2 avoided.

[Energy newsclip] The green way to keep on trucking


The green way to keep on trucking

By Sarah Murray

Published: March 13 2007 02:00 | Last updated: March 13 2007 02:00

A family in Oregon recently embarked on an unusual experiment. Using the package-flow technology developed by UPS, the global transportation company, the family saved $3.69 a day on fuel - almost $1,000 over the course of the year.

When such savings are translated to UPS's fleet of almost 92,000 cars, vans, tractors and motorcycles, the results satisfy not only finance executives but also those trying to cut the company's carbon footprint.

While e-commerce is a fact of life, goods bought in the virtual world still have to be moved around using old-world, physical transportation systems. And, with rising oil prices and growing fears over climate change, transport - once considered a necessary evil by retailers and shippers - is now the focus of attention.

Many look to alternative fuels and hybrid-electric vehicles. But information technology has an important role to play in making existing vehicles more efficient, particularly when it comes to aggregating small gains across large fleets.

Take something as simple as reducing left-hand turns. For US drivers, this means less time idling in the middle of the road waiting for oncoming traffic to pass. "Left-hand turns - that's a huge issue," says Cyndi Brandt, product managerfor the Roadnet transportation suite.

A division of UPS, Roadnet sells software that logistics managers at companies such as Pepsi and Anheuser-Busch use to re-engineer their fleet routing.

Roadnet uses an underlying map database thatcan penalise or disable left-hand turns in the route planning process. The systemis well suited to the delivery business because driverscan run circular routes, ending up where they started.

Using this technique, Roadnet customers generate surprising savings on fuel and emissions. Collectively, Roadnet clients save an estimated 54.4m gallons of fuel a year and can cut about 85,000 trucks and cars out of their logistics systems.

"One customer in Florida parked two of its trucks, and then grew by 20 per cent but didn't put those trucks back on the road until year four," Ms Brandt says.

When it comes to transport emissions, the spotlight is now on aviation. Again, technology provides part of the answer. Because aircraft are at their most fuel-efficient at cruise altitude, reducing the time spent circling at lower levels substantially cuts emissions.

Automatic dependent surveillance-broadcast technology (developed by UPS Aviation Technologies, now part of Garmin International) uses GPS to determine a plane's position and lets pilots space out theiraircraft more efficiently during landing.

Aircraft can use a continuous descent approach while flying in idle mode, cutting emissions by 3 per cent between cruise altitude and runway, and by 34 per cent below 3,000 feet.

"You imagine a three-degree slope from 35,000 feet down to a sea level airport, and you don't use any power on the aeroplane till you get 10 miles from the runway," says Karen Lee, a senior 747 captain at UPS. "The savings on fuel, noise and emissions are pretty incredible."

Technology is also helping retailers and logistics providers cut back on wasted "backhaul", when vehicles, having delivered goods, return to base with no cargo. In Europe, one in three vehicles runs empty, according to some estimates.

Online freight brokerages can link companies that have backhaul space with shippers that need their goods transported. "Fleet owners are looking to fill some of their backhauls so they publish their capacity, availability and timing," says Greg Aimi, director of supply chain research at AMR Research.

"So the network has visibility to the carriers hauling freight today that will free up tomorrow afternoon."

Some believe that the real potential, when it comes to cutting the freight industry's carbon emissions, lies in determining whether shippers should be using trucks at all, if other modes of transport, such as rail, are available. In emissions terms, water and rail transport are the most efficient, while trucks and planes are the heaviest polluters.

Ironically, deploying different modes of transport was what Malcom Mclean, the "father of containerisation", had in mind when he came up with a uniform steel box that could be transferred seamlessly between ships, truck and trains.

But since then global businesses have embraced just-in-time delivery - which some say works against fuel efficiency and carbon emissions reduction.

Because speed and low inventories are what count in just-in-time delivery, manufacturers ship goods only when retailers need them- often in small, dailyshipments. This requires extensive fleets of partially full vans, rather than a smaller number of fully loaded, larger trucks running weekly.

"What they're trading off is inventory versus oil," says Larry Lapide, head of research at MIT's centre for transportation and logistics. "Just-in-time is one of those concepts that makes sense while oil is cheap, but it doesn't make sense when oil is expensive."

Demand for timely manufacturing has also limited the amount of freight transport travelling "intermodally", using several modes of transport. Retailers like the speed and flexibility of trucks using direct routesto the shop or distribution centre, rather than thecomplex business of connecting their shipments with more carbon-efficient trains or ships.

Getting cargo back on to these different modes of transport is the idea behind research being conducted by academics at the Rochester Institute of Technology and the University of Delaware. "We're interested in the energy and environmental impacts of freight transport as a whole," says RIT's James Winebrake.

Prof Winebrake and his team are developing a computer model that would create commercial freight routes in the way that MapQuest or Google Maps make maps for motorists.

"But we're saying: 'I want to go from point A to point B in the least carbon-heavy fashion, or emitting theleast particulate matter,' " Prof Winebrake says. "We also evaluate the least cost and least time of delivery routes and make those trade-offs - because it's all about trade-offs."

Researchers working on Gift - the geographic intermodal freight transport model - have laboriously input detailed data about roads, railways, waterways, ports and rail connections. So far the project has mapped out most of the US's eastern seaboard.

With time and resources, Prof Winebrake says, Gift could be applied on a global basis. "So if you want to move sneakers from Hong Kong to New York City you could see the least carbon-intensive way of doing that - our long-term goal is to have that in place."

Sarah Murray is the author of "Moveable Feasts: The Incredible Journeys of the Things We Eat", Aurum Press, May

High-tech logistics reveals true path

* Route and load optimisation software. Transport management systems have long been used to increase the efficiency of retailers' and carriers' supply chains. However, companies now realise these systems can also cut fuel costs and carbon emissions.

* Aviation navigation technology.Automatic dependent surveillance broadcast technology helps pilots form a continuous descent profile in which they are flying in idle mode, thereby cutting carbon emissions.

* Freight matching on the internet. Like online dating, web technology matches freight forwarders with empty trucks to shippers looking for a cargo space, dramatically reducing the number of wasted return or "backhaul" journeys.

* Intermodal route optimisation. Since some modes of transport are more environmentally friendly than others, researchers are developing a system to allow shippers to use a variety of modes of transport, to choose routes not only in terms of speed and expenditure but also in terms of lower cost to the environment.

[Energy newsclip] Incandescent light bulb switch-off 'by 2009'


Incandescent light bulb switch-off 'by 2009'

By Andrew Bounds in Bonn

Published: March 13 2007 02:00 | Last updated: March 13 2007 02:00

Incandescent light bulbs will be switched off in Europe by 2009, industry executives told the Financial Times on Monday.

Manufacturers said they could meet a deadline set by European leaders at a summit on Friday and were already working towards it.

"EU leaders should be congratulated on their support for the rapid setting of binding minimum energy efficiency standards on street, office and domestic lighting products," said Jan Denneman, president of the European Lamp Companies Federation (ELC) and head of energy-efficient lighting at Philips, the Dutch company.

On March 1, members of the ELC announced a joint commitment to support a shift from traditional light bulbs to energy-efficient lamps for the home.

Philips, Osram of Germany, GE of the US and other manufacturers agreed the move at a meeting with EU governments and the Commission at the International Energy Agency in Paris.

It followed an earlier agreement to switch to energy-efficient bulbs for street and office lighting.

Brussels is already planning an impact assessment study, due to begin in May. This would need to be speeded up for the deadline to be hit, said Mr Denneman.

"These bulbs have been on the market for 15 years. Price has been a factor. If the EU sets minimum energy-efficiency standards, people will have to buy them," Mr Denneman said.

He said a new generation of light-emitting diode bulbs should improve the problems of lower light power that Angela Merkel, the German chancellor, complained about. He said governments or power companies could also offer subsidies, as they have done in the past, to encourage their use.

In the 27-member EU, about 2.1bn energy-inefficient lamps are sold every year compared with 180m energy-efficient bulbs. There are 3.6bn inefficient lamps in use in Europe. Assuming that the efficient bulbs cut energy use by half, the change could save about23 megatonnes of CO2 or an electricity cost saving of €7bn ($9.2bn, £4.8bn).

[CSR newsclip] Brown backs summit on emissions trading


Brown backs summit on emissions trading

By Fiona Harvey,Environment Correspondent

Published: March 8 2007 02:00 | Last updated: March 8 2007 02:00

Gordon Brown is backing plans for a global conference on greenhouse gas emissions trading in London inan attempt to capitaliseon the UK's lead in thefield.

The chancellor's commitment emerged yesterday as business leaders met Mr Brown at 11 Downing Street to discuss the need to strengthen the carbon dioxide emissions trading scheme.

The group of eight business people supported plans for a conference, to be led by the G8 leading industrialised nations, in London, which has become a global centre for the fledgling carbon trade.

Ian Cheshire, chief executive of B&Q, told the Financial Times: "Carbon trading is something the UK can really take global leadership on." Paul Golby, chief executive of Eon, said the conference would "discuss how to take carbon trading forward on a global basis".

The group discussed a possible public-private partnership on carbon capture and storage technology, and urged Mr Brown to give companies greater clarity on the future of the European Union's emissions trading scheme. At present, there are no clear plans for the scheme beyond 2012, when the second phase ends, though the European Commission has promised it will continue beyond that date.

The government is consulting on how to bring 5,000 new businesses, including hotel chains and large retailers, within emissions trading.

Mr Cheshire said Mr Brown stressed his desire to encourage low-carbon industries in the UK: "Gordon Brown sees that this is something the UK can lead the world on."

Carbon capture and storage is likely to be at the forefront of emissions reduction technology. Companies in-volved in it have called for more generous government subsidies, but the Treasury has been reluctant to commit to direct aid.

Mr Golby said the chancellor had discussed the possibility of a public-private partnership, under which some of the infrastructure required for carbon capture and storage, such as long pipelines to carry carbon dioxide to undersea storage, could be built using public money and private companies would pay to use them.

The market for environmental goods and services is predicted to grow rapidly. According to forecasts by Shell yesterday, the market would rise by 21 per cent this year. By 2008 itwould be worth £2.8bn to UK businesses, the company said.

Shell said growth areas of which small to medium-sized businesses could take advantage by 2010 included the market created by new environmental building regulations, forecast to be worth £950m; the renewable electricity market, forecast to be £800m; the market for renewable road transport fuels at £500m; and the market for goods and services related to increasing domestic energy efficiency, at £400m.

[Energy newsclip] Drax goes green and pays £121m dividend: Britain's biggest coal plant to burn renewables as 10 per cent of its output by 2009


Drax goes green and pays £121m dividend
Britain's biggest coal plant to burn renewables as 10 per cent of its output by 2009
Steve Hawkes

Drax, the owner of Europe's biggest coal plant, announced a £121 million special dividend today as it unveiled plans to go green and produce ten per cent of its output from renewable fuels by 2009.

The group said that the plan to use "co-fire" biomass with coal would help to generate an annual saving of two million tonnes of CO2, equal to the output of 460 of wind turbines.

Dorothy Thompson, the chief executive, said: "We firmly believe that we have an important part to play in the UK's transition towards a low carbon economy."

The move comes just months after eco-protestors converged on Drax's power station in North Yorkshire in an attempt to shut the site down.

Related Links

It generates about 7 per cent of Britain's electricity and is the single biggest emitter of carbon dioxide in the country.

Biomass comes from specially grown energy crops such as oil palms and is already used in small quantities at coal plants across the UK.

Drax believes that if every plant used biomass, 21.5 million tonnes of carbon dioxide would be saved each year.

It is already spending £100 million a year on installing more efficient blades, which it claims will boost efficiency at the power plant by 5 per cent to 40 per cent.

The special dividend announced today, of 39.2p per share, came as record electricity prices helped Drax to report annual pre-tax profits of £634 million, more than double the £264 million made in 2005.

Turnover climbed 49 per cent to £1.38 billion.

In addition to the special dividend shareholders will pocket a final payout of 9.1p per share. It means that investors have been paid a total of £497 million in dividends in the past 12 months.

Ms Thompson, the only British woman chief executive of a FTSE 100 firm, said: "These results and our achievements in 2006 reflect the benefit from our strategy of delvering excellence in plant operations and trading performance."

But she admitted that falling wholesale prices had "significantly reduced" the margins that the company is currently making from generation. About 80 per cent of production is hedged for the coming year, with fixed priced sales at an average of £47.6 per mega-watt hour.

"I would never say 2006 was as good as it gets but it was a strong year," she said.

[Energy newsclip] Green energy deals 'mislead customers'


Green energy deals 'mislead customers'
By Martin Hickman, Consumer Affairs Correspondent
Published: 08 March 2007

Britain's biggest energy companies have been investigated by the regulator Ofgem over the way they operate "green" schemes that offer the public the chance to be supplied with wind, wave and solar power.

Ofgem has told The Independent it is concerned that customers may be being misled about the actual impact of the so-called "green tariffs" on the generation of renewable energy. Instead of offering additional clean power, the companies have merely been selling green customers the renewables they are forced to buy by law anyway, often at a premium.

Customers have been able to switch electricity supply since privatisation without changing pipes or meter and green tariffs should offer people cleaner forms of power generation.

The schemes operated by the companies imply that they will do this. Npower's Juice scheme says: "As a customer, npower matches every unit of normal electricity that you use and feeds the same amount, generated from renewable sources, into the electricity network."

EDF's website promises: "EDF pledges to match the electricity you use with the equivalent amount of electricity from renewable sources; wind, landfill gas and small-scale hydro."

The big energy companies do buy renewable power, but environmental groups, the industry watchdog and the regulator say they are not increasing their the amount they buy as a result of their green tariffs.

In fact they are only "repackaging" the renewable energy supply under the Government's Renewable Obligations Order introduced in 2002.

Even then they fail to meet these legal quotas, the campaigners complain. The result is that tens of thousands of customers are charged more for green tariffs, yet no extra green energy is produced as a result .

A spokesman for Ofgem said: "Suppliers really must demonstrate that if they are marketing these tariffs they are doing something in addition to the Renewables Obligation." The regulator said it was revising its guidelines on how companies market the products.

At present only 4.2 per cent of electricity is generated by renewable sources despite the UK's advantageous location for solar, wind and wave power - which the Renewable Energy Association claims is the best in Europe. Only 1 per cent of households are currently on green tariffs. They are barely advertised by the power companies and have to be sought out on their websites. If the public were to opt for green tariffs en masse - and exceed the percentage for the Renewables Obligation (currently 6.7 per cent) - suppliers would be forced to buy extra renewable power to meet their promise to supply them with clean power.

In a report, Virginia Graham, of the National Consumer Council (NCC), said: " Many green tariffs are not delivering the environmental benefits they claim to. As a result consumers may not be making the positive contribution they think they are. Many suppliers are doing little more than meeting legal requirements."

Of 12 green tariffs analysed by the NCC, it deemed 10 to be disappointing. British Gas, for instance, has the largest green scheme with 80,000 customers but the NCC concluded it was merely meeting the law.

The only schemes to get "three ticks" were Good Energy and Scottish & Southern's RSPB Energy.

Nick Rau, energy campaigner at Friends of the Earth, said: "Most suppliers have simply established green tariffs and then proportioned in some arbitrary way renewables to their green consumers.Their purchases ought to result in an additional pull on renewables, but that's not happening. We have been calling for an independent auditing of these schemes."

The Energy Retail Association said it was "early days" for green tariffs. "I know that some suppliers charge a premium but others have equalised the price," said a spokeswoman.

The Verdict

* BRITISH GAS: No additional environmental benefits

* ECOTRICITY: Does more than most

* EDF ENERGY: Good practice but supply only meets legal minimum

* GOOD ENERGY: The best for "pure and simple" green energy

* NPOWER: Supply goes no further than legal obligations

* POWERGEN: Fund will help but only meetng law on supply

* SCOTTISH & SOUTHERN: No additional environmental benefits

* SCOTTISH POWER: Not going beyond legal obligations but green trust a serious effort

[Energy newsclip] Does the record-breaking purchase of TXU signal a new strategy for private equity?


Eco-warriors at the gate

Mar 1st 2007 | AUSTIN, LONDON AND NEW YORK
From The Economist print edition

Does the record-breaking purchase of TXU signal a new strategy for private equity?

Reuters

ANOTHER week, another record-breaking private-equity deal. But the $45 billion purchase of TXU, a Texan energy utility, is fascinating not just because of the high price agreed by a gang of private-equity firms led by Kohlberg Kravis Roberts (KKR) and Texas Pacific Group. The preparation of the deal was as much about politics as the number-crunching and financial alchemy that are private equity's stock in trade. In essence, the buyers are betting that the increasingly sensitive question of how to produce energy in an environmentally acceptable way is better handled by a privately owned firm than by one exposed to the public markets.

In recent months TXU has become the bogeyman of green activists, thanks to its plans to build 11 old-tech, "dirty coal" power plants in Texas—and possibly more in several other states. Such plants belch carbon dioxide into the atmosphere, contributing to global warming, and produce other noxious substances. Protesters demonstrated last month outside the capitol building in Austin. The mayor of Dallas has led a coalition of Texas cities opposed to the new coal plants. And the governor of Texas, Rick Perry, was roundly criticised for trying to speed through the construction of TXU's coal plants, before being blocked by a state judge.

 

The new private-equity owners of TXU say they will adopt a radically different approach. Capitalism's legendary "Barbarians at the Gate", made infamous by KKR's acquisition of RJR Nabisco in 1989, have become a bunch of tree-huggers. They will cut the number of new coal plants to three and abandon thoughts of similar plants elsewhere. They will invest heavily in new clean-energy technologies. And they promise to put environmental stewardship at the heart of TXU's culture, under the guidance of William Reilly, a former chairman of WWF, a green lobby group. That comes naturally, you understand, to a board member of WWF like David Bonderman, co-founder of Texas Pacific.


Greenmail

Environmental Defence, another lobby group, which had been suing TXU, greeted the new strategy as a "watershed moment in America's fight against global warming." Although campaigns against the three remaining plants will continue, many of TXU's critics have concurred. Such is the reward for a huge amount of behind-the-scenes work led by Mr Reilly, who is admired by green activists for his efforts to improve America's Clean Air act while serving in the administration of George Bush senior.

Texan politicians were also lobbied by Don Evans, a former commerce secretary, and James Baker, a former secretary of state, both of whom will serve on TXU's new board. Mr Baker will be chairman, which should take the heat off TXU's chief executive, John Wilder, who will remain in his post. All this is faintly humiliating for Mr Wilder, who must renounce a strategy he vigorously advocated (though he will be well paid for it). The new owners want him working for them, since he is an "excellent operations guy".

The Texas state legislature is threatening to block the deal, even though that is strictly beyond its power. Locals gripe that since the state deregulated its electricity market five years ago, rates have risen fast. The buyers have already promised a 10% rate cut for some customers, at a cost of $300m, but some lawmakers want more.

The new buyers argue that the political threats to energy firms are hard for a public company to handle. "The company before was focused on one constituency, public shareholders. That meant it had to concentrate on short-term growth," says Michael MacDougall, a partner at Texas Pacific. "This deal adds two more constituents, the consumers of the state of Texas and environmentalists. By balancing these three constituencies, we will get the best long-term result for the firm."

As well as the cancellations and the rate cut, TXU will increase spending on energy conservation. It will build a pilot "clean coal" plant on one of the cancelled dirty-coal sites. It will invest more in alternative energy—Texas is already America's leader in wind power—and, controversially, keep an open mind about more nuclear power.

In spite of all that, cynics question how virtuous the new owners really are. In recent years KKR and Texas Pacific each failed in separate bids for energy utilities. Their sudden greenery may have been devised to see off the sort of opposition that wrecked those deals. And cancelling the planned plants might benefit TXU, by leaving Texas short of power and so allowing the firm to raise prices. The private-equity buyers insist that the three plants being built, plus conservation, will give TXU and its stakeholders long enough to come up with a plan, but the state's population is expected to double by 2060 and Texans need plenty of electricity to run their air-conditioners in the blazing summer heat.

Whatever the motive, cutting back on new coal plants was a wise business decision. Doubters also note that the cost of building coal-fired plants has risen in recent years. Last year Duke Energy, another big utility with green pretensions, raised the projected cost of two coal-fired plants from $2 billion to $3 billion.

Lastly, new regulations could change the economics of coal by putting a price on carbon emissions. "It makes sense to assume we will have carbon regulation within three to five years," says Mr Reilly. On February 26th five western states agreed to set up a scheme to cap emissions; nine north-eastern states are already implementing one and Congress is contemplating a national cap. Even the Edison Electric Institute, an industry lobby, says it would not oppose mandatory limits on emissions under the right circumstances.

Wood Mackenzie, a research firm, forecasts that most of America, including Texas, will need more generating capacity in the next few years. But so long as the regulatory outlook remains highly uncertain, the safest option for many utilities, including TXU, may be to build fewer plants—a strategy that would at least bring the consolation of higher energy prices.

By betting that they can profit from social and political change, TXU's private-equity buyers seem to be following a road much travelled by their peers in venture capital, says Josh Lerner of Harvard Business School. This strategy has been "a long time coming," he says. But he notes that it is more dangerous than private equity's traditional approach. Playing politics may prove a risky business even for private-equity's masters of the universe.

[Energy newsclip]


UK backs green energy targets in U-turn

By George Parker andSarah Laitner in Brusselsand Fiona Harvey,in London

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

Tony Blair will next week complete a British U-turn over green energy and support an ambitious 20 per cent mandatory target for renewable power as a share of European generation capacity.

The British prime minister has overruled his industry minister and will argue at an EU summit that Europe needs binding targets for renewables to show it is serious in fighting climate change.

France yesterday indicated it could also drop its opposition to mandatory targets, suggesting that next week's summit will herald a surge in investment in wind, solar, biomass and other renewable power sources.

The news is a victory for Angela Merkel, German chancellor and host of the Brussels summit, who believes Europe's commitment to tackling global warming would be hollow if member states pursued a voluntary approach.

Mr Blair was also lobbied strongly by environmentalists and by José Manuel Barroso, European Commission president, whose energy and climate change policy will be the summit centrepiece.

A British government spokesman said Mr Blair wanted to back Ms Merkel and Mr Barroso: "We will therefore support the proposal for a binding EU-wide 20 per cent target for renewables."

He said the 2020 target would have to be met in a "realistic way", with some member states having to do more than others to meet the overall European objective. Alistair Darling, British industry secretary, argued last month for a flexible and non-binding approach.

French diplomats said President Jacques Chirac could also accept the binding target provided there was "flexibility in implementation" - code for an agreement that France's nuclear industry already contributes to cutting carbon emissions.

Poland and some other new member states are also worried about the renewables commitment but allies of Mr Barroso said they hoped they could be won over before the March 8-9 summit.

Without a big increase in renewable use, the 27-member union stands little chance of meeting its target of cutting overall greenhouse gas emissions by at least 20 per cent by 2020 compared with 1990 levels.

Mr Blair is said by colleagues to view the summit as "one of the most important in years" and a test of whether the European Union could lead the world in fighting climate change.

About 5 per cent of the UK's electricity generation comes from renewable sources at present. This is behind government projections, under which 6.7 per cent should come from renewables this year to meet Mr Blair's pledge of generating 10 per cent from renewables by 2010.

[CSR newsclip] Going green is seen as 'the' issue


Going green is seen as 'the' issue
By Nic Fildes
Published: 28 February 2007

Leading lights in the private-equity industry have taken up the environmental cause as the sector looks to distance itself from criticisms of the social effects of its activities.

Speaking at this year's Super Return conference in Frankfurt, some of the most powerful players in the sector called for action on environmental issues despite the fact that many of the executives flew to the event in private jets.

Stephen Schwarzman, head of the Blackstone Group, was most vociferous, saying anybody who did not watch the documentary An Inconvenient Truth by the former US vice president Al Gore, had to be "intellectually deficient". "Businesses have to do things to address this issue. It is not a game," Mr Schwarzman continued. "It's not a green issue, it's not a pink issue, it's not a red issue. It's the issue," he stressed.

Steven Puccinelli, head of European private equity for InvestCorp, said his company had started factoring environmental issues into its investments. "Corporate jets are something the world could do without," he said.

The takeover of the Texan utility TXU gave private- equity companies a platform to discuss the industry's environmental credentials after Texas Pacific and KKR, the two companies that have offered to buy the company, pledged to drop plans to build eight coal plants.

One executive, speaking off the record, said: "Private equity has ended up looking more responsible than regular companies. I don't know what the unions think about that."

[CSR newsclip] Fairtrade sales soar as shoppers go ethical


Fairtrade sales soar as shoppers go ethical

By Richard Fletcher and Harry Wallop

Last Updated: 12:56am GMT 26/02/2007
Sales of Fairtrade products soared 46pc last year, reaching £290m, providing further evidence of the growth of the ethical consumer. The surge in sales will be announced today at the start of Fairtrade fortnight.

 
Justin King in the Windward Islands, Fairtrade sales soar
J Sainsbury chief executive Justin King visited the Windward
Islands earlier this month to meet Fairtrade banana farmers

The figures come on the same day as Treatt, one of the UK's oldest companies, supplying flavourings to the cosmetics industry, is due to buy into a Kenyan supplier of ethically-sourced oils.

But despite this deal and the surge in Fairtrade sales, Harriet Lamb, executive director of the Fairtrade Foundation, is expected to warn in a speech tonight that many businesses are still failing to respond to consumer demand.

"Up and down the country the public are knocking on doors from the town hall to the local supermarket asking for more engagement with Fairtrade and this is driving companies, large and small, to respond," she will say.

"But way too many companies have yet to wake up to the public's changing expectations. Fairtrade is beginning to move from being an 'optional extra' to a 'must-do'."

Market research firm Mintel expects ethical consumers to spend £2bn on Fairtrade, organic and locally-sourced products this year, a rise of 62pc since 2002. Mintel belives that the Fairtrade market alone will be worth £547m by 2011.

Sainsbury's, the UK's largest Fairtrade retailer, will pledge today to sell only Fairtrade tea, coffee and hot chocolate in its in-store restaurants. The company is also planning to sell a range of clothing made from Fairtrade cotton.

 
Fairtrade sales graph, Fairtrade sales soar

Justin King, chief executive of Fairtrade, said: "Thirteen years after we launched our Fairtrade Food range, we are seeing record demand from customers."

His faith in ethically-sourced products is shared by Treatt, which will announce its first acquisition since it set up shop in Bond Street in 1886 selling fragrances such as musk and ambergris. It now supplies leading cosmetic and food companies with flavourings.

It is spending £2.55m on 50pc of Earthoil, a Kenyan company that manufactures organic and ethically-sourced essential oils, such as tea tree oil and cocoa butter. Body Shop is one of its biggest customers.

Fairtrade products now include everything from ice cream to black pepper and from honey to cotton wool. The Fairtrade mark is awarded to products that meet standards set by the Fairtrade Labelling Organisation.

A number of retailers, including Top Shop and Marks & Spencer, have recently launched Fairtrade clothing ranges. Threshers recently launched a Fairtrade wine.

[CSR newsclip] China's good corporate citizens find their voice


China's good corporate citizens find their voice

By Richard McGregor in Beijing

Published: February 26 2007 02:00 | Last updated: February 26 2007 02:00

For years, China has been subjected to sharp foreign criticism about conditions in its factories amid claims that its cheap exports come at the expense of the environment and workers' safety and pay.

In recent monthsthe debate has taken a twist, with an increasing number of similar charges levelled from inside China, by officials and quasi-government industry bodies concerned about an export backlash.

For the first time, an industry body, the China National Textile & Apparel Council, formerly a ministry, has launched a programme pushing "corporate social responsibility".

CSR, a tool used by many multinationals to burnish their credentials as good corporate citizens, is a set of voluntary principles adopted by businesses to take account of the economic, social and environmental effects of its work.

The council says its pilot scheme for nine member companies to adopt CSR principles is essential to the textile industry's survival.

"This is not just China trying to take care of its image, but also to improve management and look after our workers. We have no choice but to do this," said Sun Ruizhe, a vice-president of the council in Beijing.

The textile industry's scheme coincides with a push from ministries in support of CSR, turning a concept hitherto unknown in China into a buzz-word. The National Development and Reform Commission, the powerful economic planning ministry, and other agencies have recently backed seminars in Beijing about CSR.

Cheng Siwei, who wields influence through his position in the National People's Congress, added weight by threatening to penalise companies that "blindly" pursued profit and neglected their social responsibilities.

Mr Chen's comments followed the latest wave of malfeasance by state-owned and private groups, including coalmine disasters, polluting factories and the use of dangerous food additives.

"Neither China nor the rest of the world will accept the notion that capital knows no morality, that one can be rich and yet irresponsible at the same time, that wealth and benevolence are breeds apart," Mr Cheng said in a newspaper article.

As one of the country's largest industries and exporters directly employing 20m people, the textile sector is an obvious candidate for CSR in China. The council oversees 38,000 companies in the industry with annual turnover of more than Rmb5m ($640m, €490m, £330m) each and whose revenues collectively reached Rmb2,500bn in 2006, up 26 per cent year-on-year.

The end of a global quota system for textiles in 2004 has created a boom for Chinese exports, provoking a backlash in European countries and in the US. China exported $144bn worth of apparel and textiles in 2006, up 23 per cent year-on-year.

Mr Sun rejected claims that the CSR push was a cynical attempt to fend off pressure for better labour and environmental standards, saying Chinese companies needed higher standards to stay competitive. "By taking care of our workers' interests, the companies have increased productivity," he said.

A spokesman for one of the companies in the scheme, Hempel China, in the textile centre of Hangzhou, said it had increased costs but was a "necessary investment", but did not have as much effect as when teams dispatched by large foreign buyers inspected safety and labour standards in factories.

"[The Chinese scheme] mainly relies on self-supervision. There are no external checks. Foreign buyers won't recognise such a practice," he said. "Although [the enforcement of the foreign standards] costs a lot of money, we have to adopt it as they are stricter in assessments and licensing."

Philippa Kelly, who works at an EU technical assistance programme in Beijing, said CSR programmes in China differed from those in the west, where they imposed obligations on top of the law.

"In China, it is an attempt by the government to get companies to abide by the law," she said. "It may ease some trade friction, but it does not necessarily help exporters trying to be more responsible, as it makes their products more expensive. They may lose out to cheaper, less scrupulous, suppliers."

The workers who are supposed to benefit do not always appreciate such assistance. A Hong Kong activist group recently campaigned against conditions in a factory contracted to make souvenirs for Walt Disney. Disney, or its sub-contractor, withdrew the orders, prompting workers who lost their jobs to stage a noisy protest outside the factory.

[CSR newsclip] Fairtrade clothing is new battleground for retailers


Fairtrade clothing is new battleground for retailers
By Susie Mesure, Retail Corresponent
Published: 26 February 2007

Fairtrade clothing has become the new eco-battleground for Britain's top retailers as demand for ethically certified cotton has doubled in six months.

The brand, which pays farmers more, is now struggling to keep pace with requests from high-street shops such as Marks & Spencer, Next, J Sainsbury and Debenhams.

The number of cotton producers that have been awarded the Fairtrade mark in the last year has increased by a third to 100 but demand is still likely to outstrip supply. M&S alone will need a third of the world's current supply to meet its pledge to be the UK's biggest seller.

Speaking ahead of Fairtrade fortnight which starts today, Tamara James, business development officer at the Fairtrade Foundation, said: "The amount of interest from the UK market means that we will need to certify more farmers."

The amount of Fairtrade cotton sold in the UK rocketed last year, far outstripping more established products such as bananas, coffee and chocolate. Cotton sales soared by almost 4,000 per cent in volume and by just over 3,000 per cent in value. The first lines reached UK shops in November 2005, supported by seven licensees (who pay the foundation in return for using its logo). That number has since risen to 30.

Sainsbury's first Fairtrade clothing ranges will arrive in its stores today. The supermarket controls most of the Fairtrade market - about 31.7 per cent, despite having a smaller share of overall grocery sales. Tesco controls 20.9 per cent and Asda 10.1 per cent. All the UK's retailers are seeking to improve their green credentials with a public that is increasingly concerned about the environmental and social impact of their choices. Tesco and M&S are spending hundreds of millions of pounds on their eco-projects.

Judith Batchelor, director of Sainsbury brand, said: "The ethical space is very crowded. When it comes to Fairtrade, the only limiting factor is our ability to supply it rather than demand. We are pushing at an open door." Fairtrade sales at the supermarket, the country's third biggest, are tipped to rise by 145 per cent this year to £130m, largely on the back of its decision to switch all of its bananas to Fairtrade.

Sainsbury's, the first major retailer to launch Fairtrade food in 1994, expects the brand to account for £200m by 2008 - out of total annual sales of around £17bn. It has appointed a full-time Fairtrade "ambassador" based in Kenya to look for more opportunities.

In Mali, where Sainsbury's sources much of its Fairtrade cotton, farmers receive 41 cents per kilo, 5 cents of which goes towards community investment such as schools. That compares with a price of 24 cents on the world market, which fell by 24 per cent from 2005 to 2006 facing competition from synthetic fibres and Western subsidies. Globally about 100 million households depend on cotton farming and two thirds of the crop comes from developing countries. It accounts for 40 per cent of all exports from west Africa.

Waitrose has also announced plans to double Fairtrade sales over the next year and has also switched all of its bananas. Steven Esom, Waitrose's managing director, said ethical spending was becoming "a mainstream consideration on customers' shopping lists".

Total UK sales of Fairtrade products are running at £300m a year, a rise of almost 50 per cent in the past year. Mintel, the research organisation, predicts the total Fairtrade market will be worth at least £547m by 2011.

Sceptics argue that most of the Fairtrade profit goes to retailers not farmers. They also criticise the movement for encouraging farmers to produce more of some commodities than others rather than diversifying, and depressing crop prices.

Rise and rise of eco-business

* Coffee: sales up 36 per cent by volume and 39 per cent by retail value from 2005 to 2006.

* Tea: increased 58 per cent by volume and 50 per cent by retail value.

* Bananas: increased 55 per cent by volume and 38 per cent by retail value over same period.

* Chocolate: increased 22 per cent by volume and 25 per cent by retail value .

* Wine: up 77 per cent by volume and 68 per cent by retail value.

* Flowers: up 161 per cent by volume and 136 per cent by retail value.

* Cotton: up 3,692 per cent by volume and 3,102 per cent by retail value.

[Energy newsclip] Positioning Brazil for biofuels success


Positioning Brazil for biofuels success

The country now produces ethanol more cheaply than anywhere else on Earth, but that may not be true for long.

Vicente Assis, Heinz-Peter Elstrodt, and Claudio F. C. Silva

2007 Special Edition: Shaping a new agenda for Latin America

As higher oil prices drive global demand for biofuels, Brazil's ethanol industry—including both local and multinational companies—seems well positioned for profitable growth. The country has the world's lowest production costs for ethanol, is its leading global exporter, and has plenty of available land to increase production.

But the forces unleashed by surging demand will challenge the industry. A McKinsey study shows that ramping up export capacity will require as much as $100 billion in new investment, depending on international demand. Brazil's fragmented network of ethanol producers and limited distribution infrastructure will struggle to keep pace. Meanwhile, the growth prospects for biofuels are generating worldwide research efforts that seem likely to yield technologies that will lower the cost of production in other countries, making them more competitive with Brazil. In this uncertain environment, industry participants will have tough decisions to make about where, when, and how much to invest.

Annual worldwide ethanol exports now total 6.5 billion liters (about 1.7 billion gallons), but our research suggests that by 2020 they could reach 50 billion to 200 billion liters, depending on crude-oil prices and the evolution of regulatory regimes around the globe. Let's say that Brazil will provide 160 billion liters—all (or nearly all) of the world's ethanol exports—in 2020. That is an extreme assumption, but an economically rational one if the country could leverage the strength of its sugarcane industry, the world's largest, to defend its position as the lowest-cost producer (Exhibit 1). If companies want to play a role in Brazil's biofuel boom, they will have to boost their current output substantially. At present, Brazil's annual ethanol output is nearly 17 billion liters, roughly 14 billion of them consumed domestically. Productivity gains from better irrigation and fertilization and from the mechanization of harvests should raise output by 30 percent over the next 15 years. The rest must come from additional investments in land, distribution infrastructure, and above all, mills.

In such a scenario, players in Brazil's ethanol industry would need to make the following investments:

1. Land. Brazil currently has 6 million hectares of sugarcane under cultivation. Increasing ethanol production to supply the country's domestic needs (roughly 30 billion liters) and to meet the export target of 160 billion liters would require a further 11 million hectares to be brought onstream by 2020. In fact, as many as 24 million additional hectares of land could realistically be available for sugarcane production. In that case, even the total of 30 million hectares for sugarcane would equal just 3.5 percent of Brazil's landmass (Exhibit 2). Although converting some pastureland to sugarcane cropland implies that less land will be available for cattle ranching, that wouldn't affect overall food production significantly. However, let's say that only a further 11 million hectares come onstream for sugarcane. We project that Brazilian sugar companies, or millers, will in all likelihood directly own 3.3 million of them—30 percent—at a total cost of $8 billion. The remainder will either be leased by the millers or cultivated by smaller third-party farmers. This arrangement is already in use today. By owning part of the cropland, millers secure some access to feedstock; by leasing some of their cropland, they reduce the total amount of capital employed. Finally, by processing sugar from third-party farmers as well as their own, they are mitigating their agricultural risk.

2. Distribution infrastructure. The industry can store and transport four billion liters of exports a year, mainly between the southeast region and nearby ports. As companies expand northward, transporting ethanol from the center-west regions to the coast will require an additional 1,000 to 2,000 kilometers of pipelines and railways. Brazil will also require at least ten billion liters of additional storage capacity at refineries to hold several months of inventory produced during the harvest period from April to November. The cost of these storage and transportation investments could be $2 billion or more.

3. Mills. The biggest investments will be for new cane-processing mills. Currently, around 350 of them annually process 460 million tons of sugarcane, half for ethanol. With current market conditions and technologies, each additional billion liters of ethanol will require 5 new mills at a current cost of $120 million each. However, because of productivity gains from new milling technologies—mainly the hydrolysis of sugarcane stalks (or bagasse)1—we estimate that about 600 new mills, at a total cost of about $90 billion,2 would be needed to produce the 2020 export total of 160 billion liters. Already Brazilian and multinational companies have begun to construct new mills, mostly for domestic supply, costing $5 billion to $6 billion each, and have announced plans to make comparable further investments.

It remains to be seen whether investments of this magnitude are feasible. Small and midsize ethanol producers (mostly families) lack the clout—especially in Brazil's relatively undeveloped capital markets—to raise the needed funds. One plausible outcome would be for these millers to persuade ethanol importers, such as logistics operators and fuel distributors in destination countries, to accept long-term supply contracts with price floors, thereby reducing the risk of the producers and helping them to raise money domestically. Otherwise, the economic fundamentals of Brazilian ethanol seem strong enough to attract investment from multinational companies. Our research suggests that by 2020, the cost of producing a liter of ethanol in Brazil, shipping that liter to Western Europe, paying all relevant tariffs and taxes, and delivering it to the consumer will be roughly $0.73—far less than today's prevailing price of $1.60 for a liter of gasoline in the European Union (Exhibit 3).

But building and operating a distribution infrastructure could be problematic. These investments will be less profitable than, say, mills—as well as more challenging politically, since pipelines will cross state lines and cut through rainforests. Petróleo Brasileiro (Petrobras), Brazil's state-owned energy company, is one logical participant.

Above all, the ability of Brazil's biofuels industry to move ahead will hinge on its continued cost competitiveness. The country's cost advantage stems almost entirely from the use of sugarcane rather than corn or other plants as a feedstock. The sugarcane plant, which flourishes only in tropical climates like those of Brazil, produces 6,000 liters of ethanol per hectare, compared with only 3,500 liters from corn.3

Emerging technologies will probably make it possible to produce ethanol more cheaply with cellulose derived from other feedstocks, such as switchgrass (which can grow in a broader range of habitats, including relatively inhospitable ones) or residues from other agricultural crops. In China it may be possible to produce ethanol from rice straw at a cost of about $0.16 a liter. If companies in Brazil can supplement today's fermentation techniques with new technology to produce ethanol from sugarcane bagasse, production costs are likely to remain competitive. If other regions can bring down production costs significantly, however, Brazil's role as an exporter will be materially smaller.

About the Authors

Vicente Assis is a principal and Heinz-Peter Elstrodt is a director in McKinsey's São Paulo office; Claudio Silva is a consultant in the Rio de Janeiro office.

Notes

1 That is, the use of enzymes to break down bagasse into cellulose (the primary structural component of plants), which can then be converted into ethanol. This "cellulosic" technology would make it possible for Brazil to produce up to 400 billion liters of ethanol per 30 million hectares of land.

2 Although the cost per mill will increase as technology advances, each mill's production capacity will increase at a higher rate, therefore decreasing the overall cost per liter of production capacity.

3 Brazilian companies have also improved on sugar's natural superiority as a feedstock by developing advanced soil cultivation techniques and even more productive plant varieties.

[Energy newsclip] Private equity plays the green card in U


Private equity plays the green card in US


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Buyers pledge to scrap coal power stations
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Campaigners back $44bn deal for 'enemy number 1'


Andrew Clark in New York and Phillip Inman
Monday February 26, 2007

The Guardian

A proposed $44bn (£22bn) buyout of Texas energy firm TXU, which is tipped to be the world's largest private equity takeover, will include an environmental commitment to scale back coal power stations and limit greenhouse gas emissions.

Kohlberg Kravis Roberts and Texas Pacific are putting the finishing touches to a purchase of TXU - a power generator which has been described as "public enemy number one" by US green lobbyists because of its aggressive programme of building coal plants.

Article continues



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It emerged yesterday that the two private equity buyers have held talks with environmental groups to win support for the takeover. To the delight of green organisations, the buyers have offered a radical change in direction - including scrapping seven of 11 new coal power stations and implementing clean air initiatives.

The deal comes as the political row over the role of private equity in British business intensified with the blue collar GMB union saying it planned to take its campaign against the industry's growing influence to the continent.

The GMB said it would protest tomorrow outside a private equity summit in Frankfurt to highlight the plight of workers from the AA, NCP and Birdseye whose jobs have been lost or threatened after being bought by Permira.

The TXU deal promises to be a major subject of conversation at the summit, which many of the world's largest private equity funds are due to attend.

It was also hailed by green campaigners yesterday as a sign that powerful Wall Street and private equity financiers are taking environmental issues more seriously and that they recognise that polluting projects have become a significant business risk.

Tony Juniper of Friends of the Earth said the proposed deal made it clear that going low carbon would be one of the big business drivers of the next decade.

"Any company making investments that last decades would be mad to put cash into high carbon environments. The winners will be companies that invest in a low carbon tomorrow."

Jim Marston, regional director of Environmental Defence which helped negotiate the agreement, said: "They've started to understand that we're living in a world where there are going to be local controls on carbon dioxide and they need to get ahead of the game."

The board of TXU was due to vote on the buyout late yesterday. If the deal goes through, the company's new owners will sign up to a mandatory nationwide limit on carbon dioxide emissions. They will support an emissions trading programramme and invest in energy efficiency programmes to reduce the need for new power plants.

Even in oil-rich Texas TXU's power plants have prompted a bitter environmental struggle. The 11 planned plants will belch out 78 million tons of carbon dioxide annually.

Last month, four green groups sued Texas's republican governor, Rick Perry, for fast-tracking several of TXU's proposed new facilities.

Economics critics have warned that Texas's air is already dirty - and that if it fails to meet expected tighter controls, the US government could cut off funds for highway improvements and other industrial support in the state.

TXU also has a controversial history in Britain where it bought two regional power supply companies and coal-fired power stations before a sharp decline in wholesale energy prices forced its European arm to go bust in 2002.

One in five private-sector workers in Britain are now ultimately employed by private equity companies.

Over the last year unions in Britain have increasingly accused the industry of seeking a quick profit and ignoring their corporate and social responsibilities. They argue that private equity firms often pay themselves large dividends, leaving companies with huge debts and little cash for investment.

The Transport & General Workers Union has lobbied ministers to examine the favourable tax treatment of debts, which they argue gives the industry an unfair advantage in bidding wars.

Top five buyouts

TXU Corp KKR/Texas Pacific $32.6bn*

RJR Nabisco KKR $25.1bn

Equity Office Blackstone $22.9bn

HCA Buyout group $21.0bn

Clear Channel Bain, THLee $18.6bn

Source: Dealogic
*Figures exclude debt

[Energy newsclip] Establishing Policy Frameworks: Energy and Climate


Establishing Policy Frameworks: Energy and Climate

Geneva, 13 March 2007 - Governments must give business "an idea of where you are going long-term", WBCSD President Bjorn Stigson told government ministers gathered in Nairobi for the Conference of the Parties (COP12) of the UN Framework Convention on Climate Change.

"Governments must start building the future policy frameworks, and it is necessary for us in business to begin to respond to those policies in time to meet the future emissions reduction targets," Stigson added. "We cannot continue the 'you first' mentality that I sense here at this COP. We need leadership and action by both governments and business."

Stigson, speaking during the High Level Segment of the mid-November conference, added: "Governments need to send a clear signal that the carbon markets… will continue beyond 2012. Otherwise, carbon markets will not and cannot work to meet the climate protection goals."

WBCSD participation in COP12 was the climax of a frantic and productive few months by the Energy and Climate (E&C) Focus Area. The members had been working on the third of their publications trilogy, which began with Facts and Trends to 2050: Energy and climate change ( 1.9 MB) in 2004, followed by Pathways to 2050 ( 2.5 MB) in 2005. Policy Directions to 2050 will be published at the end of March 2007. The question marks were serious because of the differing views among the Council members on the desirable solutions.

But unlike their governments, the members did not take "you first" stances. They discussed, negotiated and edited with good spirit, flexibility and creativity. During the New York Council meeting, they agreed on the wording of an eight-page document to be taken to Nairobi, the modestly but copiously titled Energy & Climate: A contribution to the dialogue on long-term cooperative action ( 2.1 MB).

As word of the existence of the document spread, journalists began calling and e-mailing the WBCSD Secretariat to get copies. Council staff took 1,000 copies to Nairobi and they disappeared almost instantly, apparently offering the most interesting "way forward" at the meeting.

The Contribution, like the Council president, calls on governments to create the predictable longterm framework conditions required for business to invest in a sustainable energy future.

"Before business invests, it evaluates the future. It gauges long-term supply and demand for its products, assesses the prevailing economic conditions including tax structures and policy frameworks and decides on an investment strategy," the report argues. Business cannot invest seriously in limiting greenhouse gas emissions unless governments "provide clear signals as to where we are headed long-term".

The report outlines the options for action "within a flexible future international framework after 2012" (when the Kyoto Protocol expires), including the following key elements:

  • Establishing by 2010 a quantifiable, long-term (50-year) goal for the management of global GHG emissions.
  • Encouraging the development and deployment of leading-edge technologies through partnerships and incentives and an approach to mitigate long-term market risk and deliver secure benefits for large-scale, low-carbon, new technology projects.
  • Including ideas and lessons learned from current approaches and in particular building on existing GHG reduction markets.
  • Modifying the existing international framework so that it builds progressively (bottom up) from local, national, sector or regional programs that contribute to the quantifiable long-term international goal and catalyzing the implementation of such programs.
  • Allowing industry sector participation across multiple facilities or technology platforms at the national level and across national boundaries, and enhancing GHG project mechanisms to allow them to cater for sector projects.
  • Progressively including all countries – both developing and developed.
The Contribution notes that the existing international framework should be revised and expanded "to encourage technology development to introduce change into the energy system; to further develop approaches to foster deployment of current best practice and existing technology; and to offer a more rapid deployment for new energy technologies." The importance of new technological development is featured in the report, especially with regards to the implementation of medium to large-scale demonstration projects.

"The global [emissions] goal would be revisited periodically, but certainly no later than 2020–25, as climate impact science continues to develop, to affirm or reset the rate of technology deployment that is required" to transition to a low carbon future, the report says.

During the second workshop in Nairobi on the dialogue on long-term cooperative action under the convention, which includes all major emitting countries like the United States and China, the Australian Co-Chair Howard Bamsey highlighted the WBCSD's Contribution document, which he said helps move forward the debate on establishing a future long-term framework that is acceptable to all major emitters.

In his speech to ministers, Stigson highlighted the need to connect the ambitions for different technologies with policies that are appropriate for each specific technology. These might include policies such as product standards for appliances, building codes, subsidies for fast market penetration of renewable energy, and sharing of R&D costs between governments and business for new technologies like carbon capture and storage or next generation of nuclear.

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[Energy newsclip] Ethanol Deal Represents Convergence of Multiple Interests


Ethanol Deal Represents Convergence of Multiple Interests

IPS, 10 March 2007 - The new partnership to promote the use of ethanol agreed during U.S. President George W. Bush's visit to Brazil is the result of the convergence of varied interests between the two countries.

"If you're dependent on oil from overseas, you have a national security issue," said Bush, explaining the U.S. decision to diversify energy sources and to reduce domestic consumption of gasoline by 20 percent over the next 10 years. He was speaking during a visit he made with host President Luiz Inácio Lula da Silva to an ethanol plant in the city of Sao Paulo.

It is also a question of economics, given the rise in oil prices driven by growing demand in countries like China and India, said Bush, who was shown Brazil's "totalflex" cars, which run on gasoline, ethanol, or a blend of both in any proportion.

The United States also produces flexible fuel vehicles, but the proportion of ethanol cannot top 85 percent.

Bush did not explicitly refer to Venezuela or the Middle East as fossil fuel sources that accentuate the risks of U.S. energy dependence, although analysts recognise them as factors that have awakened the U.S. administration's interest in drastically increasing the use of alternative fuels.

The United States depends on Venezuelan oil for around 11 percent of its domestic demand for fuel.

Japan has put into effect a programme that will lead to the gradual adoption of the use of ethanol, allowing a three percent non-obligatory blend of ethanol, with the goal of increasing that to 20 percent by 2030. Europe has also adopted gradual plans, with an emphasis on biodiesel.

But Bush wants to multiply national consumption of ethanol sevenfold in just 10 years.

In the joint press conference, President Lula emphasised the social aspects of the new alliance. The new cooperation with the United States, he said, will create the conditions to "convince the world that everyone can change the energy blend," by generating "a global market for biofuels" that will "democratise access to energy," create jobs and reduce poverty in developing countries.

Biofuels are the best way to promote development in poor countries in regions like Africa, Central America and the Caribbean, said the Brazilian leader. Rich countries should finance production projects in poor countries and open up their markets to their products, instead of providing aid, he argued.

The memorandum of understanding signed Friday by the two governments states that biofuels are a "transformative force in the region to diversify energy supplies, bolster economic prosperity, advance sustainable development, and protect the environment."

The agreement entails cooperation in research and development of next-generation biofuel technology, such as ethanol production from cellulose, which will increase productivity of raw materials and incorporate new ones, since any biomass can become a source for fuel.

For example, the new technology will allow Brazil to take advantage of sugar cane bagasse and leaves, increasing productivity threefold, say experts. Wood, weeds and other plant waste products can also be transformed into ethanol.

In the United States, corn is now the main raw material used to produce ethanol, while in Brazil it is sugar cane.

Brazil, a pioneer in ethanol production, has been replacing gasoline with the alternative fuel for 32 years. But although Brazil currently is the leader in ethanol technology, the United States, with its superior capacity in R&D, is likely to make faster progress in terms of producing ethanol from cellulose.

Brazil is thus interested in a technological alliance to maintain its competitiveness in the future. The United States already produces more ethanol than Brazil: nearly 18 billion litres a year, compared to the South American giant's 17 billion. But Brazil has a large competitive advantage, with production costs nearly one-third below those of the United States.

Brazil also hopes to boost its sales to the United States, which totalled 1.6 billion litres last year. Part of these sales were through Central American and Caribbean nations that have signed free trade deals with the United States and re-export Brazilian ethanol tariff-free.

Another facet of cooperation will be with third countries, where private sector investment in biofuels will be stimulated.

The strategy will begin with Central America and the Caribbean, for local production and consumption, especially of ethanol. That would create another potential supplier for the huge U.S. market, which will need 132 billion litres a year of ethanol if the 2017 target set by Bush is to be met.

The Brazil-U.S. agreement is also aimed at fomenting a global biofuels market, with the definition of technical rules and regulations. To this end, the two countries will work together in the International Biofuels Forum, in which India, China, South Africa and the European Union are also participating.

In terms of bilateral trade, the Brazilian government and business community are calling for the elimination or reduction of U.S. tariff barriers to Brazilian ethanol, which is taxed at 54 cents per gallon, plus a 2.5 percent tariff.

But Bush said the tariff, which was extended to 2009 by the U.S. Congress, would not immediately be removed.

The association between the world's two largest ethanol producers, which account for around 70 percent of all ethanol production, could have broad repercussions. An agreement between Brazil and the United States, for instance, could help unblock the World Trade Organisation (WTO) Doha Round of multilateral trade talks, said Lula.

The new biofuels fever also modifies the global outlook in agriculture, holding out possibilities of opening up solutions to the dismantling of farm subsidies shelled out by the United States and the European Union, which are the biggest obstacle in the Doha Round.

To develop the biofuels market, the Brazilian government has already offered cheap loans to companies interested in building plants. The public National Bank for Economic and Social Development provided nearly one billion dollars in financing towards that end in 2006, and could raise that amount by 25 percent this year.

Over the next six years, Brazil will open one ethanol factory a month on average, bringing the total number from the current 336 to 409 by 2013.

Bush's one-week Latin America tour is also taking him to Uruguay, Colombia, Guatemala and Mexico.

[Energy newsclip] EU leaders clinch climate change deal


EU leaders clinch climate change deal

AFP, 9 March 2007 - European Union leaders clinched a landmark climate change accord on Friday that set a binding target for renewable energies to make up 20 percent of overall EU energy consumption by 2020.

Talks at an EU summit had broken up overnight with divisions over the issue of "renewables," but by late Friday morning leaders had agreed a compromise that accorded member states a degree of flexibility in achieving their individual national targets.

German Chancellor Angela Merkel, whose country holds the rotating EU presidency, said the agreement would usher in a new era in the fight against global warming.

"It has been possible to, as it were, open the door to a new dimension of European cooperation for years to come in the area of energy and combatting climate change," Merkel said.

The accord commits the European Union to making renewable energies, such as solar and wind power, the source of 20 percent of the bloc's energy consumption by 2020.

The leaders also pledged to reduce emissions of carbon dioxide by 20 percent by 2020, compared to 1990 levels.

Merkel said she felt "no little satisfaction that today we are able to go for such ambitious and credible targets".

European Commission President Jose Manual Barosso lauded what he described as an "historic" agreement that would carry a global impact.

Countries like Poland and the Czech Republic which are heavily dependent on carbon energy sources like coal, had complained that the binding renewable energies target was overly ambitious and prohibitively expensive.

To bring those states on board, the agreement stressed that "differentiated national overall targets" would be set, "with due regard to a fair and adequate allocation" that took into account the potential of each member state.

Thus, those countries whose exploitation of renewable energies is already well advanced would take up the slack left by the others to ensure the overall bloc-wide target is met.

However, that will entail tough negotiations as to how much of the burden each member state will have to bear.

"I have assured them that we will do this in all fairness and seeking the acceptance of each member state on these objectives," Barroso said.

"There has to be flexibility. Different nations have different conditions," Swedish Foreign Minister Carl Bildt told reporters.

"For instance, we can easily meet the renewable target in Sweden -- in fact we are above it. But others are having substantial difficulties," Bildt said.

The accord represents a minor victory for France by having nuclear power recognised as one way to reduce carbon dioxide emissions.

The text noted the European Commission's assessment of the contribution of nuclear energy in "meeting the growing concerns about safety of energy supply and carbon dioxide emissions reductions."

However, it also highlighted safety concerns stating that "nuclear safety and security" should be "paramount in the decision-making process".

Barroso said he believed the final agreement comprised "the most ambitous package ever agreed by any institution or any group of countries" to combat climate change.

But he stressed that the steps taken at the summit marked just the beginning of what would be a long and complicated process.

"What we are proposing is overall targets for Europe, but afterwards we have to take into consideration the different national situations to come with specific proposals," Barroso said.

Green groups have criticised the 20 percent reduction target for carbon emissions as inadequate.

"A 30 percent reduction is needed for the EU to meet its own objective of keeping the global temperature increase below two degrees Celsius," Friends of the Earth said in a statement.

"Adopting the lower target (20 percent) for the EU makes it unlikely that countries like the USA and Australia will come forward suggesting a target of 30 percent for themselves," it said.

[Energy newsclip] EU leaders give boost to energy-savings plan


EU leaders give boost to energy-savings plan

EurActiv.com, 12 March 2007 - Heads of states and government have urged the Commission to "rapidly submit proposals" to scrap ordinary light bulbs across Europe within two years and to improve efficiency standards in office equipment and street lighting.

EU leaders threw their weight behind the Commission's effort for greater energy savings on 9 March, stressing "the need…to achieve the objective of saving 20% of the EU's energy consumption compared to projections for 2020".

In October last year, the Commission presented an action plan to save Europe some 20% in energy consumption by 2020 and slash its energy bill by more than €100 billion annually, preventing millions of tonnes of CO2 being emitted into the atmosphere.

Following measures recently adopted by the Australian government to scrap incandescent light bulbs from Australian homes within three years, the Spring Summit on 9 March urged the Commission to "rapidly submit proposals" on:

  • Energy savings from office and street lighting "to be adopted by 2008", and;
  • "incandescent lamps and other forms of lighting in private households by 2009".
Irish Prime Minister Bertie Ahern was quoted by Reuters as saying: "We are very impressed by the Australians and before we came to the summit, we had already been in touch with them and looking at the issue."

German Chancellor Angela Merkel, who chaired the summit meeting, said: "We're not saying that people should throw out all the bulbs in their house today but people should start looking at what's in the shops."

"Banning old-fashioned light bulbs across the EU would cut carbon emissions by around 20 million tonnes per year – and save between €5-8bn per year in domestic fuel bills," said UK Green MEP Caroline Lucas.

Although ordinary light bulbs are cheaper, Lucas says they need to be replaced "some 15 times before an energy-saving alternative reaches the end of its life," something that she says is costing households "millions".

"It really is a win-win proposal: banning old-fashioned light bulbs would be a step towards tackling both fuel poverty and climate change."

Lucas has drafted a Written Declaration that she hopes other MEPs will endorse, calling on the Commission to propose legislation to ban ordinary light bulbs.

Links

EU official documents

EU actors positions

[CSR newsclip]


Ozone layer protocol "doing most for climate"

ENDS Europe Daily, 7 March 2007- In the period to 2012, the 1987 Montreal protocol on ozone layer protection will eliminate five to six times more greenhouse gases world-wide than the Kyoto protocol on climate protection, according to Dutch and American scientists.

Molecule for molecule, it is well known that ozone-depleting CFCs and HCFCs being phased out under the Montreal protocol are thousands of times more potent greenhouse gases than carbon dioxide, the main gas targeted by the Kyoto protocol. But this is the first time that it has been shown that their elimination will overall achieve far more for the global climate up to 2012 than the greenhouse gas limits taken on by industrialised countries under the 1997 Kyoto protocol.

The scientists calculate that Montreal protocol curbs on ozone-depleting chemicals will deliver about 11bn tonnes of CO2-equivalent greenhouse gas reductions per year up to 2012. The Kyoto protocol will only deliver 2bn tonnes per year.

UN environment programme chief Achim Steiner said the findings showed that the climate benefits of the Montreal protocol deserved more consideration. It also demonstrated that well designed environmental policies could have multiple environmental benefits, he said, and that calculating costs of environmental action from narrow economic criteria often failed to capture wider economic benefits.

The scientists predict that the Montreal protocol's climate benefits will dwindle beyond 2012 as ozone-depleting chemicals begin to be fully phased out, and if countries make deeper cuts in greenhouse gas emissions.

[Energy newsclip] Energy Dept. Invests $385M in Cellulosic Ethanol


Energy Dept. Invests $385M in Cellulosic Ethanol

GreenBiz.com, 8 March 2007 - U.S. Department of Energy Secretary Samuel W. Bodman announced that DOE will invest up to $385 million for six biorefinery projects over the next four years. When fully operational, the biorefineries are expected to produce more than 130 million gallons of cellulosic ethanol per year.

This production will help further President Bush's goal of making cellulosic ethanol cost-competitive with gasoline by 2012 and, along with increased automobile fuel efficiency, reduce America's gasoline consumption by 20 percent in ten years.

"These biorefineries will play a critical role in helping to bring cellulosic ethanol to market, and teaching us how we can produce it in a more cost effective manner," Secretary Bodman said. "Ultimately, success in producing inexpensive cellulosic ethanol could be a key to eliminating our nation's addiction to oil. By relying on American ingenuity and on American farmers for fuel, we will enhance our nation's energy and economic security."

Today's announcement is one part of the Bush Administration's comprehensive plan to support commercialization of scientific breakthroughs on biofuels. Specifically, these projects directly support the goals of President Bush's Twenty in Ten Initiative, which aims to increase the use of renewable and alternative fuels in the transportation sector to the equivalent of 35 billion gallons of ethanol a year by 2017.

Funding for these projects is an integral part of the President's Biofuels Initiative that will lead to the wide-scale use of non-food based biomass, such as agricultural waste, trees, forest residues, and perennial grasses in the production of transportation fuels, electricity, and other products. The solicitation, announced a year ago, was initially for three biorefineries and $160 million.

However, in an effort to expedite the goals of President Bush's Advanced Energy Initiative and help achieve the goals of his Twenty in Ten Initiative, within authority of the Energy Policy Act of 2005, Secretary Bodman raised the funding ceiling.

"We had a number of very good proposals, but these six were considered 'meritorious' by a merit review panel made up of bioenergy experts. So I thought it would be best to front-end some more funding now, so that we could all reap the benefits of the President's vision sooner," Secretary Bodman said.

Combined with the industry cost share, more than $1.2 billion will be invested in these six biorefineries. Negotiations between the selected companies and DOE will begin immediately to determine final project plans and funding levels.

Funding will begin this fiscal year and run through FY 2010. EPAct authorized DOE to solicit and fund proposals for the commercial demonstration of advanced biorefineries that use cellulosic feedstocks to produce ethanol and co-produce bioproducts and electricity.

These are the six projects selected for funding:

  • Abengoa Bioenergy Biomass of Kansas, LLC of Chesterfield, Missouri, up to $76 million.
    The proposed plant will be located in the state of Kansas. The plant will produce 11.4 million gallons of ethanol annually and enough energy to power the facility, with any excess energy being used to power the adjacent corn dry grind mill. The plant will use 700 tons per day of corn stover, wheat straw, milo stubble, switchgrass, and other feedstocks.
  • ALICO, Inc. of LaBelle, Florida, up to $33 million.
    The proposed plant will be in LaBelle (Hendry County), Florida. The plant will produce 13.9 million gallons of ethanol a year and 6,255 kilowatts of electric power, as well as 8.8 tons of hydrogen and 50 tons of ammonia per day. For feedstock, the plant will use 770 tons per day of yard, wood, and vegetative wastes and eventually energycane.
  • BlueFire Ethanol, Inc. of Irvine, California, up to $40 million.
    The proposed plant will be in Southern California. The plant will be sited on an existing landfill and produce about 19 million gallons of ethanol a year. As feedstock, the plant would use 700 tons per day of sorted green waste and wood waste from landfills.
  • Broin Companies of Sioux Falls, South Dakota, up to $80 million.
    The plant is in Emmetsburg (Palo Alto County), Iowa, and after expansion, it will produce 125 million gallons of ethanol per year, of which roughly 25percent will be cellulosic ethanol. For feedstock in the production of cellulosic ethanol, the plant expects to use 842 tons per day of corn fiber, cobs, and stalks.
  • Iogen Biorefinery Partners, LLC, of Arlington, Virginia, up to $80 million.
    The proposed plant will be built in Shelley, Idaho, near Idaho Falls, and will produce 18 million gallons of ethanol annually. The plant will use 700 tons per day of agricultural residues including wheat straw, barley straw, corn stover, switchgrass, and rice straw as feedstocks.
  • Range Fuels (formerly Kergy Inc.) of Broomfield, Colorado, up to $76 million.
    The proposed plant will be constructed in Soperton (Treutlen County), Georgia. The plant will produce about 40 million gallons of ethanol per year and 9 million gallons per year of methanol. As feedstock, the plant will use 1,200 tons per day of wood residues and wood based energy crops.
Cellulosic ethanol is an alternative fuel made from a wide variety of non-food plant materials (or feedstocks), including agricultural wastes such as corn stover and cereal straws, industrial plant waste like saw dust and paper pulp, and energy crops grown specifically for fuel production like switchgrass. By using a variety of regional feedstocks for refining cellulosic ethanol, the fuel can be produced in nearly every region of the country.

Though it requires a more complex refining process, cellulosic ethanol contains more net energy and results in lower greenhouse emissions than traditional corn-based ethanol. E-85, an ethanol-fuel blend that is 85-percent ethanol, is already available in more than 1,000 fueling stations nationwide and can power millions of flexible fuel vehicles already on the roads.

[Energy newsclip] Renewable energy firms see growing revenue, report says


Renewable energy firms see growing revenue, report says

Greenwire, 7 March 2007 - Companies specializing in providing renewable energy technology, consulting or development grew their revenue by an average rate of 39 percent last year, giving the sector a value of $55.4 billion worldwide, according to a Clean Edge report released yesterday.

The report concludes that the global market for renewable energy products could climb to $226.5 billion by 2016 as the world turns to biofuels, solar cells and wind turbines to supply more of its energy.

Biofuels created $20.5 billion in revenue last year, and sales were strong in both the United States and Brazil, the report said. The researchers forecasted that the world biofuel market could top $80 billion in the next 10 years.

Meanwhile, solar sales totaled $15.6 billion in 2006 and could grow to $69.3 billion by 2016. And the wind power market saw $17.9 billion in revenue last year, with the most activity coming from the United States and Europe. Wind revenue could hit $60.8 billion by 2016, the report said.

Also, venture capital flowing to the U.S. alternative energy market last year came to $2.4 billion.

"It's still in the early stages, and the transition will take decades, but we're at the point where it's moving out of the niches and into the mainstream markets," Clean Edge co-founder and Principal Ron Pernick said (David R. Baker, San Francisco Chronicle , March 7).

[CSR newsclip] Swedening the Pot: An interview with IKEA sustainability director Thomas Bergmark


Swedening the Pot
An interview with IKEA sustainability director Thomas Bergmark
By David Roberts
27 Feb 2007
Photo: IKEA
Green by design.
Photo: IKEA


Last week, IKEA U.S. announced a "bag the plastic bag" initiative: the retailer will charge a nickel for plastic bags to discourage their use, donating all revenue to the nonprofit conservation group American Forests. The store will also let shoppers walk away with one of its iconic reusable blue bags for 59 cents. Pleasant enough news, but it struck me as somewhat cosmetic. Hadn't I heard that IKEA's commitment to sustainability went much further than this?

A little poking around on the IKEA website uncovered a
set of practices that puts every big U.S. retailer to shame. From the wood in its products to the factory conditions of its suppliers to the energy efficiency of its distribution network, IKEA has outlined tough, progressive standards almost unheard of in the U.S. Now it's working to move all its stores to completely renewable energy.

Why not brag about that stuff instead of the bags? I contacted IKEA's head of social and environmental responsibility, Thomas Bergmark, at the company's headquarters in Sweden to find out the details behind this unassuming approach.




questionTell me a little bit about this initiative in the U.S. with the plastic bags.

Thomas Bergmark.
Thomas Bergmark.
answerIt might be the first campaign where we are more on the offense. The basic strategy not only in the U.S. but in all our markets has been to be quiet, low-key. We should first do and then talk. We have from time to time been a bit criticized because we have been too quiet. Different stakeholders have realized that we try hard and we do a lot -- so why don't we talk about it? We have now for three years issued a yearly social and environmental report on the web. We communicate more in different kinds of media, of course in the catalogue and in IKEA family magazines for our customer club and so forth. This campaign is one step in that direction, to be more aggressive and more transparent in these issues.

questionHow does IKEA view its obligation to the environment?

answerWe have a vision for business that was written more than 30 years ago. It's about creating a better everyday life for the people. Today, it's obvious to care about the people, you have to care about the environment.

The starting point for our sustainability is the people and the culture. We have a very strong company culture. One of the cornerstones since IKEA was founded more than 60 years ago is to care about resources -- we are clever with resources. For the first 20 years, this was only about turning and twisting the materials to utilize them in the best possible way, to save on material and thereby save on costs. But today we know it's a perfect win-win also for the environment. You save on the resources, you save on the environment. That has evolved over the decades.

Then of course there is the core business side as well. We are more than aware of that. We have to take responsibility for these issues if customers are to trust us today and in the future. We are convinced that if we work hard on sustainability and make progress, it will build trust in our consumers and with the IKEA brand. The culture issues and the business issues meet with the brand and the IKEA logo.

questionHas IKEA tried to make its stores green?

answerWe're focusing more and more on that. First of all, we are setting up an IKEA standard, which includes the different steps in establishing a store. The first step is to look into a site, the land and such, to make sure we are not stepping into any sensitive areas that should be protected for biodiversity or other reasons. We consider the building materials we use when building new stores. Now we also consider environmental issues.

Then, of course, it's about operations -- energy, water issues related to the stores. We do a really good job on waste sorting and recycling compared to many other retailers. Then there's the maintenance of the stores. And at the end of the day, it's the products we put in the stores.

What we recently started up on an international level is an extra focus on energy. We have set a long-term direction to supply all IKEA buildings with renewable energy, which means electricity and heating. We're also working on energy efficiency, to get 25 percent more energy efficient.

questionWill the renewable-energy goal be met by buying offsets, or is there going to be on-site generation as well?

answerThe basic idea is to, as far as possible, produce the energy ourselves, at the sites, with solar, wind, biomass, and geothermal heating/cooling. For new stores, we are looking to build it in. Then for all existing stores, we have to do analysis on the different options of retrofit. Some units might be tricky, and we'll have to see how to compensate that with carbon credits, or maybe by producing energy at another place and putting it back into the grid -- maybe creating a balance like that.

questionDo you have a specific deadline or target to get to completely renewable energy?

answerWe have set the first step for 2009, where we're going to reach 60 percent renewable energy and 15 percent more energy efficient. Then, based on analysis we are doing right now, we will set the end goals, hopefully during this calendar year.

questionOne traditional environmental objection to big-box chain stores is that shipping goods from all over the world is incredibly energy intensive. Is that on IKEA's radar?

Photo: IKEA
Photo: IKEA
answerYes, for sure. Distribution is one of the focus areas for IKEA, and has been for quite a few years. What we have done for more than 50 years, which we benefit from still, is the flat pack. We save volume, which is simple but important because it makes a big, big difference in transport work. We've had a [producers] code of conduct for more than six years now, about social, environmental, and working conditions. And we have a similar code of conduct now for our transport carriers -- one and a half years ago we put requirements in these fields.

Transport is a challenging area. I have to admit, it's one of the tougher ones to change, because it is a traditional business, where you don't see too many groundbreaking solutions. What is coming now is more biofuels, and we are supporting that -- hopefully we can use more and more biofuels for trucks, especially in the near future.

questionWhat about trying to source from local or regional suppliers?

answerYes, for sure. One reason for having a trading organization in America is to supply North American stores. Our stores in America are still depending on imports from Europe and Asia, no question about that. But as the market grows and we build more stores, we'll also increase the possibilities for local sourcing and thereby reduce the shipping [impacts].

questionHave you encountered resistance from suppliers, or have you found that they're eager to work with you when you put these kind of social and environmental restrictions on how they operate?

answerIt differs. You can say suppliers in Europe and the Americas are generally more positive. If we speak about Asia, it differs a lot. Some suppliers, they buy the concept right away. Others are very ... I would say not resistant but questioning -- why should we do this? It is a big job to convince them to start the process.

Some of these suppliers after a while think, no, it's too much, so they'll say, we are leaving IKEA. We have to live with that. Other suppliers, they go through a different journey. They explain it like this to me, that when they first got the requirements, they thought it was a lot, but since they had a good experience with IKEA for many years, they thought, these guys from IKEA, they're clever, so we'll give it a try. Then they get going. I have a couple of cases of suppliers I have met in Asia that tell me, "You know what happened next? I got a couple of new potential customers visiting my factory the other week, and they asked about code of conduct issues and environmental and working conditions. And I could show them what I have been doing so far together with IKEA. And I got new business."

It boils down to what it has to be about at the end of the day: business. It has to be about improving conditions in the factories, for people and the environment, and at the end of the day also improving the productivity and competitiveness of the suppliers.

questionAre you going to try to ramp up communications and PR around environmental issues?

answerYeah, communications and information. We're definitely not the company that wants to ring the big bell and do a lot of heavy marketing. Actions like the blue bag campaign, now, that's fine, but you will not see campaigns on billboards. We will make information about our sustainability efforts more easily available to different stakeholders, including the customers in our stores. That we are working on -- to be more transparent, to be more visible in these issues. It's expected from our customers.

[Energy newsclip] How Cool Is Austin? With a deep, collective breath, the city rolls out a world-class – but as yet unproven – climate-protection plan


How Cool Is Austin?
With a deep, collective breath, the city rolls out a world-class – but as yet unproven – climate-protection plan
BY KATHERINE GREGOR


A delicate balance
Photo By Jana Birchum

"It's a moral challenge for us as human beings to step up."

Mayor Will Wynn is blunt when he talks about the global climate change crisis and the new Austin Climate Protection Plan. Embodied in a resolution adopted unanimously by City Council in February, the plan states no less lofty a goal than to "make Austin the leading city in the nation" in the fight against global warming. The mayor asserts that he, the council, and the city manager are fully engaged and "very serious collectively" about reducing Austin's greenhouse-gas emissions. Such leadership is critical at the city level, the council resolution states, because "the federal government has failed to enact meaningful responses to reverse the threat of global warming."

In his office last week, Wynn spoke at length about the Climate Protection Plan, with an infectious passion that made it evident the 45-year-old mayor has found his bliss. "I am so optimistic and energized and motivated!" said Wynn. "Shame on us, as a city and as a community, if we don't step up as a model for saving the planet."

It's not every day a mayor gets to be Superman and save the world. But is Austin's new plan really that good? And is it achievable?

"My overall take is that Austin's ambitious plan really is among the best in the nation, along with Seattle, Portland, and Santa Monica," said Glen Brand, in the Portland, Maine, office of the Sierra Club's Global Warming & Energy Program.


This chart shows the relative current amount of carbon emissions per capita within countries/regions. Even adjusting for population size, the United States bears the major responsibility for producing (and therefore for reducing) carbon emissions.

"I think it's the single most comprehensive global warming plan of any city in the U.S.," said Jim Marston, director of the energy program for Environmental Defense in Austin. "It's put a spring in my step!"

"This goes beyond what any city in America has done for outlining a vision and aggressive goals," echoed his colleague Colin Rowan. "Is it achievable? Well, even if we miss the most aggressive goals a bit, we'll have improved things far more than we would have if we didn't set the bar this high."

A few local activists immediately questioned the launch and details of the plan. But Rowan explained, "It's important to understand that [Mayor Wynn] has outlined a broad vision. He didn't mandate the specifics. It's not yet a course of action ... but he really did his homework. Over the next year, the vision will be translated into how it will actually be executed and how it will be possible." Rowan cautioned that to succeed, "The city and mayor are really going to have to remain incredibly involved in this. It has to be a defining project for Mayor Wynn.

"People skeptical of government would assume that when a mayor makes an announcement of this scale, he's got all the details nailed down," Rowan noted. "But that's not what the mayor was doing. He was showing them the North Star: Here's where we want to go. Now we have to figure out how to get there."



A Mayor's Awakening

Will Wynn's calling to take personal action in the global warming crisis is a model of the gradual awakening that he hopes the ACPP can inspire in all Austinites. As a council member and in his first term as mayor, Wynn found himself working increasingly on issues involving Austin Energy, the city-owned electric utility. The more he learned about energy sustainability, he says, the more his passion and interest grew, although initially he regarded global warming as just one in the "grab bag" of environmental issues. One personal turning point was watching the international debate surrounding the Kyoto Protocol; "I was appalled we didn't sign the treaty," he says. Another was his increasing involvement with the U.S. Conference of Mayors, with Seattle Mayor Greg Nickels becoming a friend and mentor. "He was way ahead in awareness and activism," notes Wynn. (Nickels' U.S. Mayors' Climate Protection Agreement has been signed by 393 mayors, including Wynn, who together represent more than 57 million Americans. Nickels is spearheading a national effort for U.S. cities to commit to the Kyoto Protocol's standard of reducing emissions by 7% from 1990 levels, by 2012.)

Based on his experience with Austin Energy, Wynn saw an opportunity for the U.S. Conference of Mayors' Energy Committee to become more progressive, so he stepped up as its chair. Then in 2006, Wynn was strongly inspired by Al Gore and the book/movie An Inconvenient Truth: "I saw how powerful Gore's message has become." Wynn recently went through training by Gore at the Climate Project to deliver the educational slide show depicted in that film. He hopes to deliver the presentation on climate change to as many as 10,000 Austinites this year – starting with every city department manager and assistant manager.

Of concern to some community members is the ACPP's lack of a citywide standard for reducing total greenhouse-gas emissions, e.g., the Kyoto Protocol. "People ask me, 'Why didn't you commit to Kyoto?'" said Roger Duncan, Austin Energy's sustainability czar, as he lamented our lack of a billion-dollar mass-transit system. "We'd have to get about 50 percent of people out of their automobiles. How do you do that in the next few years?" Duncan explained, "We could have just picked a number and thrown it out there, but we have to do the detailed planning first, or it won't mean anything."

Other environmental activists, like Donna Hoffman at the local Sierra Club chapter, see an immediate need to formalize an ACPP citizen advisory team. But City Manager Toby Futrell cautions, "The mayor had a big, bold idea. Thank God! Someone has to get it started nationally, and I'd like Austin to do that. What I'd ask is for everyone to please be a little patient; please give us a little time to try and frame an action plan. It's going to take every person in the community to help. This is so big, it's going to take every person and brain cell in Austin. So just let us get our arms around the vehicles and mechanisms for how to do this first."

[CSR newsclip] Carbon footprint of products to be displayed on label package


Carbon footprint of products to be displayed on label package
By Ian Herbert
Published: 16 March 2007

The Carbon Trust is launching a green equivalent to the Fairtrade label - a consumer label which details the carbon footprint of a product and a commitment by its producer to reduce it.

Several major brand products, including Walkers crisps (carbon footprint: 75g), Boots Organics shampoo (148g) and Innocent smoothies (294g), will test the use of the logo - a white arrow wrapped in a black letter C. Over time it is expected that many more will join, raising the prospect that products might be marketed on the basis that they have the lowest carbon footprint in their marketplace.

The first product to be stamped with the logo will be Walkers cheese and onion crisps - the company's best-selling flavour. The Carbon Trust has enabled the company to identify the footprint of the three competing products in its range - crisps, Quavers and Doritos - by tracing its production cycle from the potato and corn producers at the start to recycling consultants at the end.

As a result, Walkers has reduced the carbon footprint of the product by a third. The trust established that farmers were hydrating potatoes to make them weigh more, because they were being paid a price per ton. Potatoes were stored in artificially humidified sheds to increase their water content. Humidifiers use large amounts of energy and generate significant emissions.

Walkers was then frying the sliced potatoes to remove the moisture. This increased overall frying time and fryer emissions by up to 10 per cent.

By changing the way potatoes are traded, the trust found that the Walkers supply chain could save up to 9,200 tons of carbon dioxide emissions and £1.2m a year. It recommended farmers be rewarded for producing potatoes with low water content.

Research undertaken by the trust shows that 66 per cent of consumers say they want to know the carbon footprint of the products they buy.

For products to carry the label, companies will need to have completed a rigorous analysis of their product supply chains, and commit to reducing the carbon level of their product over the next two years.

[Energy newsclip] GE chief: All engines go for alternative energy


GE chief: All engines go for alternative energy

By Martin LaMonica
http://news.com.com/GE+chief+All+engines+go+for+alternative+energy/2100-11392_3-6166353.html

Story last modified Tue Mar 13 06:28:45 PDT 2007



CAMBRIDGE, Mass.--Rising energy demand worldwide and environmental concerns have made investments in energy technologies the most compelling in decades, General Electric CEO Jeffrey Immelt says.

Immelt was the keynote speaker on Saturday at the Massachusetts Institute of Technology's Energy 2.0 Conference, where he asserted that the energy industry is becoming more diverse because of improving economics and societal changes.

He also detailed the strategy behind the industrial giant's varied activities in the energy and environment area, which range from oil and gas exploration to wind power to water purification.
Jeffrey Immelt


Credit: News.com

Jeffrey Immelt,
General Electric CEO

"We are looking at a time when technology and innovation in the energy sector can finally have a value, where innovation can be priced in a way that the industry hasn't seen in a long time," Immelt said.

He also noted that the energy industry and public policy has changed very little in the last 25 years.

That's because volatile fossil fuel prices have made long-term investments hard to finance. Also, there has been a "societal expectation that (energy) is a God-given right," making it difficult for the market to put a value on it, he said.

But that dynamic has been changing, Immelt argued. A forecast for consistently high demand, particularly from India and China, means that energy prices will stay high in the coming decades, giving corporations and entrepreneurs a more sound basis for investments.

"There's every reason to think that the world really has changed and that the investment horizon...is a different one today, where market signals (indicate) you might get a return for the risk you take," he said.

Another significant change is people's view toward the environment, Immelt said.

Environmentalism as the norm
Environmental advocacy used to be done on the fringes, often in conflict with corporations and governments. Now, there is interest in conserving natural resources among businesses, citizens and politicians of all parties, he said.

"Environmental thinking is no longer the purview of isolated, far-left thought. It is now a mainstream economic discussion. It is pervasive in almost every country in the world," Immelt said.

GE's environmental technologies are perhaps the most high-profile example of a growing boom in alternative energies and so-called green technologies.

Photos: Green tech in focus at MIT Energy 2.0 conference

Its Ecomagination initiative, launched in 2005 under Immelt's direction, aims to capitalize on environmental problems. Activities touch on everything from specialized materials for solar cells to more energy-efficient home appliances and train engines.

The results of Ecomagination so far have been "amazing," he said. The company has been able to lower its greenhouse gas emissions 1 percent for the last few years, employees feel engaged in the effort, and the company is on track to increase its revenue in this sector by 10 percent yearly for decades, he said.

The initiative stemmed from a review in 2004 in which the company spoke to 500 customers and saw a great deal of interest in environmental investments, Immelt said.

"The conclusion we came to is that global warming is a fact. We are very dispassionate about it," Immelt said.

Until now, technologies to address global warming and other environmental problems have been "by and large, lazy," he added.

Financial stake in renewable energy
GE's revenue from renewable energy--wind, solar and biomass--will be $7 billion in 2007. Five years ago, when it began ramping up investments, revenue was $5 million. Research and development dedicated to energy overall is about $2.5 billion per year.

Even with GE's financial stake in renewable energy, Immelt said that the company continues to invest in fossil fuel-related equipment with the potential to be used at a large scale worldwide.

"Hydrocarbons will be the dominant fuel source for the next 50 years," he said. "We are going to our installed base to try to make technologies around hydrocarbons more efficient, more effective and more pervasive."

GE makes $20 billion a year in power generation and $7 billion a year in exploration.

Now on News.com:

The company is making big bets in coal gasification--the process of converting coal to synthetic gas, which should burn cleaner--and the modernization of nuclear power plants.

Coal is highly polluting but is relatively abundant worldwide and entrenched in the power generation industry. As a result, Immelt said, GE is investing in gasification and sequestration--the process of storing carbon dioxide from burned coal underground or underwater.

Immelt said GE is expecting that greenhouse gas emissions, which includes carbon dioxide, will become regulated. The company was a founding member of United Climate Action Partnership, an organization of corporations and environmental groups calling for federal policies to restrict greenhouse gas emissions.

GE's portfolio approach of investing in several energy technologies mirrors the changing energy investment picture overall, Immelt said.

"If I had to bet on one fuel source, I don't know what I'd do. I'd be frozen," he said. "The fact is that capitalism and entrepreneurialism will solve these societal problems."

[CSR newsclip] Vista upgrades trigger surge of e-waste


Vista upgrades trigger surge of e-waste

Reusing hardware in developing countries brings two-fold benefits, writes Dave Friedlos

dave friedlos, Computing, 22 Feb 2007
Picture of Bill Gates at product launch

The long-awaited launch of Microsoft Vista late last year is expected to result in a surge of obsolete PCs market as companies go ahead with deferred desktop systems upgrades.

Analysts are predicting that as many as 10 million computers could be discarded over the next two years in the UK alone, posing a problem for businesses looking to meet recycling regulations such as the European Waste Electrical and Electronic Equipment (WEEE) directive that comes into force in July.

There is a range of choices for companies needing both to avoid dumping PCs in landfill sites and to address corporate social responsibility requirements.

One option is to give redundant hardware to a charity that can organise for the kit to be recycled or reused.

Computer Aid International, for example, refurbishes PCs for use in the developing world.

Under the WEEE directive, donating to the developing world makes good business sense, Computer Aid chief executive Tony Roberts told Computing.

And with e-waste recycling facilities in the UK already struggling to cope with the WEEE directive, reuse is even more appropriate, he says.

'Green issues are rising up the business agenda and we can guarantee that donations produce zero landfill and offer 100 per cent traceability through the waste stream,' said Roberts.

Reuse is a practical solution because computers are rarely obsolete after the three- or four-year lifespan of a typical business desktop upgrade cycle.

'If we can extend the life of a computer by a further three years, we can halve its environmental footprint,' said Roberts.

'It also provides an extra 6,000 hours of usage to people that would not otherwise have access to IT,' he said.

Concerns that company security could be jeopardised by corporate information left on the recycled systems put a major brake on firms recycling their old PCs, says Gartner analyst Steve Prentice.

'Most businesses have no problems with recycling in principle, but are understandably wary of data being stolen,' said Prentice.

'There is a limited number of organisations capable of professionally recycling PCs – other than physically destroying them, firms cannot be 100 per cent sure their data is safe,' he said.

Computer Aid says it employs market-leading, data-destruction software to address the problem.

As environmental issues really take hold, such practices will become standard and the number of companies donating computers to charity will increase, says Gartner's Prentice.

'Environmental concerns have come from nowhere to number two on the agenda, only behind data security.

'And, regardless of the WEEE directive, many businesses are now looking at how to dispose of PCs properly because of customer demand,' he said.

Charities are also working to ensure that the reuse of obsolete systems in developing countries does not result in the problem of electronic waste being overlooked.

Computers for Schools Kenya (CFSK) distributes desktops provided by Computer Aid, and makes sure every possible component is recycled or reused.

'When a PC no longer works, we remove all the parts that can still be used for the maintenance of other computers and what is not reusable is separated,' said CFSK technical services manager Edwin Martins.

'We divide the soft and hard plastics – the soft plastic is recycled locally where it is melted down and reshaped into new products, and the hard plastic is shipped to recycling plants in China,' he said.

Metals such as gold, silver, iron, copper and aluminium are stripped out and recycled locally and by Chinese metal dealers.

The biggest challenge is recycling old monitors because they are bulky to ship and contain toxic parts that require special processing. But while finding the funds for an early shipment, CFSK developed an innovative solution to the problem.

The tubes inside computer monitors often work even after the electronic components have failed. So CFSK removes the circuitry and replaces it with a television board.

'We hook the tube to the television circuit, rewire the buttons to create volume and channel buttons and put in new speakers,' said Martins.

'We then have a working TV that lasts longer and is cheaper than a regular set,' he said.

CFSK has more than 400 old monitors in storage, but expects to recycle them all within the next two years.

15.3.07

Sustainability Reporting: Straight to the Bottom Line -- "Risk management is at the very center of [ABN Amro]," says CFO Hugh Scott-Barrett. "It is part of our core business, and so is sustainable development."


Sustainability Reporting: Straight to the Bottom Line

by Fay Hansen

ABN AMRO, headquartered in Amsterdam, is one of the world's largest banks and a global leader in sustainability reporting, a process that now sits at the heart of risk management and performance improvement for forward-looking companies. "Risk management is at the very center of the bank," says CFO Hugh Scott-Barrett. "It is part of our core business, and so is sustainable development."

With $1.3 trillion in total assets and 110,000 employees in 53 countries, ABN AMRO serves consumer and commercial clients, including a number of multinationals. Every year, the bank issues a 100-page sustainability report along with its annual financial report as a measure of its success in protecting its assets and adding value to the organization.

Two-thirds of the 250 largest companies in the world have adopted sustainability reporting as a tool to gauge future performance. This approach has little to do with vague concepts of corporate social responsibility or public relations ploys and everything to do with long-term business strategy. It is a crucial companion to financial reporting that provides data on nonfinancial factors related to environmental, social and governance issues that affect future performance, income generation and value preservation.

"Sustainability reporting builds client intimacy and brand value and attracts investors," Scott-Barrett explains. "In the coming period, we aim to integrate sustainability even more into the mainstream business activity of the various parts of our organization. We also want to integrate sustainability reporting into our financial reporting."

The evolutionary course of sustainability reporting is now taking shape as more companies move from informal statements to formal reporting with a full array of metrics tied directly to business performance and risk management. ABN AMRO follows Global Reporting Initiative (GRI) 2002 guidelines for sustainability reporting but is moving to G3 reporting, a new version of the GRI guidelines released in October 2006. The Global Reporting Initiative is a decade-old nonprofit organization based in Amsterdam that created the sustainability reporting framework and guidelines and works closely with the UN Global Compact.

Although the internal push for higher productivity and lower risk continues to propel the move toward sustainability reporting, powerful external forces are now driving adoption among reluctant firms. U.S. companies lag far behind their European counterparts in sustainability reporting, but insurers, banks and investors are increasingly demanding that they close the gap.

"In the insurance industry, financial reporting is viewed as very low-beam, with a narrow focus on risks in the center of the road," notes Erik Thomsen, distinguished scientist at Hyperion Solutions Corp., a global business performance software provider headquartered in Santa Clara, Calif. "Sustainability reporting is high-beam, in that it illuminates broader side-of-the-road risks. These risks can have very large-scale impacts. Sustainability reporting includes provisions for forward-facing risks by redefining what is considered relevant information."


Performance Improvements

As ABN AMRO and other companies have discovered, that relevant information is highly actionable. "For ABN AMRO, sustainability started very much with being focused on protecting our assets through our environmental, social and ethical risk assessments," Scott-Barrett says. He can now readily list tangible examples of the competitive advantage that ABN AMRO achieves through sustainability reporting. "Our commitment to sustainability recently won ABN AMRO a much sought-after tender on commodity finance from a large international client," he notes. "This was what differentiated us from the competition. We are winning other new clients because of our sustainability expertise and commitment, ranging from retail clients and big charities to major multinationals."

The bank's sustainability reports also ensure that it is highly rated by analysts who include sustainability in their assessments. "In 2005 and 2006, we maintained our high ratings in the major indices," Scott-Barrett says. "We also strengthen our long-term business and emotional connection with our stakeholders by being transparent and addressing concerns in a timely and proactive manner.

"We've found out that our sustainability reporting results in many initiatives all around the bank," Scott-Barrett says. "Preparing a sustainability report requires having a sustainability strategy, objectives and information systems on performance. This results in transparency and accountability."

For example, the managing board decided to reduce the bank's energy footprint by at least 10 percent by 2008 compared with 2004. "We will realize this target, resulting in reduced energy costs, CO2 emissions and increased staff engagement as they contributed to making this happen for a better environment," Scott-Barrett says. "It is a win-win-win situation."

Royal Numico, a Netherlands-based baby food and clinical nutrition company with more than $2.6 billion in annual revenues, also uses sustainability reporting to drive performance improvements and manage risk. "In our sustainability reporting, we link our performance indicators closely to business issues," notes Jean-Marc Huët, CFO. "As a result, we report transparently about such matters as food safety, customer complaints and responsible sourcing."

Royal Numico also uses sustainability reporting as a risk-management tool. "We pay a lot of attention to mitigating our risk to ensure the supply and the high quality of the products we sell. At Numico we have always set very high standards for quality and food safety, and we are keenly aware that the reputation of our brands depends on the trust of our consumers. Following GRI and tracking the indicators is not a burden for us, but rather an essential part of our management of risk in the company."

The markets have rewarded Royal Numico for its efforts. "We have made rapid progress in the indices that benchmark transparency and sustainability," Huët says. "As a result of sustainability reporting, Numico now has access to a new class of shareholders -- those who are interested in the quality of our company and prefer to invest in the many funds that adopt sustainability criteria." Royal Numico's sustainability markers are all key long-term indicators of the quality of the company. "Our sustainability performance against these measures is as relevant to our investors as Numico's growth and profitability," Huët says.


The Business Case

Like ABN AMRO, Royal Numico will move from GRI 2002 guidelines to G3 in its next report. "What is important is to be able to have a sound basis for comparison against our peers," Huët says. "At that same time, the new guidelines make it clear that every company is different. They allow us the freedom to set our own priorities in sustainability on the basis of what is material and relevant to Numico's stakeholders."

"The GRI guidelines are a very structured and data-driven approach," Thomsen notes. "U.S. companies often opt out of the GRI guidelines because they are not yet committed to systematic sustainability reporting. Over the next few years, they will move toward the GRI guidelines because the comparability of data is hugely valuable."

The business case for sustainability reporting has several levels. "At the high level, evidence suggests that financial indicators are in flux," Thomsen says. "The usefulness of financial reporting has declined steadily for decades because a larger percentage of value is increasingly wrapped up in nonfinancials. To focus only on financials is to lose sight of future indicators of performance."

The next level consists of indicators on the operations side: costs and efficiencies. "The relationship between a company and the communities it occupies correlate closely with its ability to access supplies and labor," Thomsen notes. "Companies can gain wider access to markets through strong reporting."

In Europe and Asia, many countries require some form of sustainability reporting. "It's a push-pull situation, with companies encouraged to report fully and governments ready to step in if they don't," Thomsen says. "In the United States, public relations have been the primary driver because sustainability reporting is in an immature stage. But companies that have been reporting for a few years realize that there is a genuine financial reason."

Only 37 of the top 100 U.S. companies now issue sustainability reports, but heavy external pressures are building for more companies to embrace formal reporting. The most powerful driver in sustainability reporting is the finance industry, according to Eric Israel, managing director, forensics practice, at KPMG LLP in New York City.

"The trend is toward recognizing the connection between sustainability reporting and risk management," Israel says. "Banks are becoming far more serious about sustainability reporting as a risk-management tool. The trend in the insurance industry is toward insurers only insuring companies that have a climate-change structure in place," which is a method for dealing with the potential impact of climate change on the company.

Shareholder resolutions for sustainability reporting have been successful at some companies. "The small shareholder niche groups pressing for sustainability reporting are less effective than the big pension plans, which have far more clout," Israel notes. "But the insurers and the banks are more effective drivers."

"Unsustainable processes represent increased risks," Thomsen says. "Sustainability reporting allows a company to keep a broad focus on the financial health of the organization. That's why institutions such as credit agencies and investment funds are looking at sustainability reporting as part of their long-term analysis. The markets are already rewarding sustainability reporting."

"In addition to the large pension funds, the growth rate of dollars managed by the socially responsible investing community is very high," Thomsen says. "On the credit side, Standard & Poor's is increasingly looking at the transparency of environmental and social reporting."

The Reporting Process

The degree of success that companies achieve in using sustainability reporting as part of their long-term strategic planning and risk assessment hinges on their commitment to the process. "It is really a question of the maturity of their sustainability reporting and the integration of sustainability reporting with the business strategy," Israel says. "Companies must develop relevant nonfinancial key performance indicators. The more specific the sustainability reporting targets, the more closely they are integrated with business strategy.

"It comes down to how senior management sees sustainability reporting and how seriously they take it," Israel notes. "Some companies see sustainability reporting only as a public relations tool; other companies really get it and see it as a way to add value."

More U.S. companies are moving toward sustainability reporting, and momentum will build with G3. "The new guidelines will further enhance the quality of sustainability reports," Israel says. "G3 is clearer than the first version, which had little room for stakeholder involvement, and is more specific about verification. It is still voluntary, but the clarity in G3 will result in more verification."

Sustainability reporting is a complex process that requires commitment, resources and an infrastructure for gathering information. "No one department can do it alone," Israel notes. "Experience with respect to reporting and the GRI guidelines is critical." Companies should begin by conducting readiness assessments. For U.S. companies just beginning to look at sustainability reporting, it may take several years to develop a good report.

"The majority of U.S. CFOs don't fully understand the risks that sustainability issues represent," Israel says. "CFOs also need to understand the need for new metrics and reliable data. The same controls they use for annual reports need to be applied to sustainability reporting. Sustainability reporting is public information and must rest on reliable data and internal controls to make sure it is correct. It provides an enhanced level of reporting and addresses specific needs of stakeholders that are not addressed by required financial reporting, for example, information on employee satisfaction and training, philanthropy, data protection and supply-chain integrity."

"Sustainability reporting should be coordinated with the CFO as a consumer and presenter of data, plus someone who owns the sustainability indicators, and someone from IT to watch over data collection," Thomsen says. "Some companies may go through the board as the driver."

At ABN AMRO, Scott-Barrett and the other members of the managing board are responsible for reporting, including sustainability reporting. The bank's disclosure committee also reviews the sustainability report before sending it for final approval to the managing board.

Royal Numico's Huët plays an active role in the sustainability process, from setting performance improvement targets to the audit and control of the internal reporting system. "As you would expect, my first concern is the quality and reliability of the data we report," he says.

"The challenge for sustainability reporting lies in developing the correct scope and focus," Israel says. "The problems lie with comparability and reliability [from one company to the next and reliability of the information in the reports]. The key driver should be the CEO together with the CFO to ensure that sustainability reporting is integrated into the business strategy and used to add value and reduce costs," he notes. "To give sustainability reporting focus and meaning as an important tool, it must be linked to business strategy."

Originally printed in the February 2007 issue of Business Finance

Catalyst could help turn CO2 into fuel: "Breaking open the very stable bonds in CO2 is one of the biggest challenges in synthetic chemistry. But plants have been doing it for millions of years."


Catalyst could help turn CO2 into fuel
  • 18:00 15 March 2007
  • NewScientist.com news service
  • Tom Simonite
A new catalyst that can split carbon dioxide gas could allow us to use carbon from the atmosphere as a fuel source in a similar way to plants.

"Breaking open the very stable bonds in CO2 is one of the biggest challenges in synthetic chemistry," says Frederic Goettmann, a chemist at the Max Planck Institute for Colloids and Interfaces in Potsdam, Germany. "But plants have been doing it for millions of years."

Plants use the energy of sunlight to cleave the relatively stable chemical bonds between the carbon and oxygen atoms in a carbon dioxide molecule. In photosynthesis, the CO2 molecule is initially bonded to nitrogen atoms, making reactive compounds called carbamates. These less stable compounds can then be broken down, allowing the carbon to be used in the synthesis of other plant products, such as sugars and proteins.

In an attempt to emulate this natural process, Goettmann and colleagues Arne Thomas and Markus Antonietti developed their own nitrogen-based catalyst that can produce carbamates. The graphite-like compound is made from flat layers of carbon and nitrogen atoms arranged in hexagons.

The team heated a mixture of CO2 and benzene with the catalyst to a temperature of 150 ºC, at about three times atmospheric pressure. In a first step, the catalyst enabled the CO2 to form a reactive carbamate, like that made in plants.

Oxygen grab

The catalyst's next useful step was to enable the benzene molecules to grab the oxygen atom from the CO2 in the carbamate, producing phenol and a reactive carbon monoxide (CO) species.

"Carbon monoxide can be used to build new carbon-carbon bonds," explains Goettmann. "We have taken the first step towards using carbon dioxide from the atmosphere as a source for chemical synthesis."

Future refinements could allow chemists to reduce their dependence on fossil fuels as sources for making chemicals. Liquid fuel could also be made from CO split from CO2, says Goettmann. "It was common in Second World War Germany and in South Africa in the 1980s to make fuel from CO derived from coal," he adds.

The researchers are now trying to bring their method even closer to photosynthesis. "The benzene reaction currently supplies the energy that splits the CO2," Goettmann says, "but in plants it is light." The new catalyst absorbs ultraviolet radiation, so the team is experimenting to see if light can provide the energy instead.

Recycled carbon

Joe Wood, a chemical engineer at Birmingham University in the UK, is also researching ways of fixing CO2. "There's growing interest in using it as a recycled input into the chemical industry," he says.

The Max Planck technique has only been demonstrated on a small scale and it has a low yield of 20%, he points out. "But it looks quite promising," he adds. "The catalyst can be made cheaply and it works at a relatively low temperature."

The products of the technique are well suited to making drugs or herbicides, says Wood, "so hopefully they can improve the efficiency and scale it up."

Reference: Angewandte Chemie (vol 46, p 1) DOI:10.1002/anie.200603478

Chocolate Giant Commits to Responsible Supplier Code


Chocolate Giant Commits to Responsible Supplier Code

SocialFunds.com, 8 March 2007 - The Hershey Company is working to create a supplier code of conduct that goes above and beyond just cocoa suppliers.

America devours more chocolate than any other country. At the same time, candy has tasted less-than-sweet for many with the exposure of unfair labor practices used in manufacturing chocolate. In 2001, the US chocolate industry signed the Harkin-Engel Protocol that outlined the end of child slavery on cocoa farms by July 2005. Although there is some disagreement as to whether the chocolate industry has indeed held to their agreement on child labor, most do agree that there has been serious work on the issue of ending child labor in the chocolate supply.

However, cocoa alone does not a candy bar make. Concerned shareholders and candy consumers are now asking for chocolate companies to work on their entire vendor supply chains, including sugar, nuts, dairy and packaging supply chains. The Hershey Company (HSY), in response to a shareholder proposal from Walden Asset Management has agreed to create a broad-based supplier code of conduct that also includes an implementation and monitoring plan.

Walden has withdrawn its 2007 proposal after establishing a constructive, on-going dialogue with Hershey's on this issue, as well as other areas of social responsibility. Walden is the SRI division of Boston Trust & Investment Management Company.

The broad-based vendor supply chain will go beyond fair labor practices to include the workplace, health and safety, the environment, food safety and quality. The code will also address implementation and auditing plans.

"We are working with the code to build compliance from inside the company as well as our suppliers," said John Long, Hershey's Vice President of Corporate Affairs. "We plan to be transparent about the code with shareholders. Our plan is to post it on our web site, posting it as we roll it out. Our objective is to be successful."

Hershey's plans to work with the non-profit
Verité and continue their partnership with the non-profit Business for Social Responsibility ( BSR ) to create and implement its supplier code. The goal of the new code is to expand its existing auditing process. Hershey's calls the code a "living document" because it will grow and change as Hershey's gains experience. This code is part of Hershey's broader commitment to corporate social responsibility.

Verité's mission is to make sure that workers have safe, fair and legal working conditions. Started in 1995, it works directly with companies, workers, labor unions and non-governmental organizations and has conducted more than 1,300 factory audits in over 60 countries. Helping companies gain control over conditions in international supply chains, Verité aims to facilitate sustainable improvements in working conditions through worker-focused monitoring, implementation of remediation programs, and capacity building for a variety of workplace stakeholders.

Dan Viederman of Verité spoke to Socialfunds.com generally on the role Verité plays when helping companies create fair working conditions: "Though social auditing has generally been the place that most companies start, it is just part of the process. An audit is asking questions - what you do with the answers to those questions determines whether working conditions improve or not. Our aim is for companies to ask the right questions in the right way. Part of that is helping them look at their own business practices, the management capacity of the factory, and a variety of other complex factors that guide our approach to improving working conditions."

Long points to Hershey's unique commitment to the community from its earliest days. In 1910, company founder Milton Hershey and his wife Catherine chartered the
Milton Hershey School in Hershey, Pennsylvania. Milton Hershey put all of his common stock in a trust to support the school. Today, the trust controls 79% of the company's voting shares.

"Hershey's has always given back to the community as part of the fabric of who we are. Now we are thinking more broadly of what community means," Long said.

The largest US manufacturer of chocolate and candy, The Hershey Company has yearly revenues of $5 billion and over 13,000 employees globally. Beside the well-known candy bars and confectioneries that are branded with Hershey's name, Hershey's also wholly owns Artisan Confections Company, which markets products under the names Scharffen Berger, Joseph Schmidt, and Dagoba.

In February, Hershey's announced a comprehensive supply chain transformation. The vendor supplier code created with its work with Walden Asset is a separate issue than the new supply chain transformation. Hershey's states the goals of its global supply chain transformation as reducing production lines by more than a third as it increases manufacturing capacity, outsourcing low value-added items and building a facility in Monterrey, Mexico. When the plan is completed, 80% of Hershey's production volume will be in the US and Canada. Although Hershey's estimates the implementation costs of the program will be between $525-$572 million over the next three years, they also expect an annual savings of $170-$190 million generated by 2010.

Another route for concerned chocolate lovers to take is to buy Fair Trade certified cocoa. Fair Trade farmers are audited annually by third party inspectors to ensure that farms meet stringent standards, including a prohibition on child labor and slavery. Adrienne Fitch-Frankel, Fair Trade Cocoa Campaigner stated, "Stakeholders throughout the cocoa supply chain need to hear loud and clear from investors that shareholders will not tolerate profits at the expense of African child slaves and that investors demand Fair Trade cocoa, an established and cost-effective system for auditing cocoa production."

This article is reproduced with kind permission of SocialFunds.com
For daily news and articles visit
www.socialfunds.com

Planet 2025 TV- A Worthwhile Humanitarian Effort


This message from Scot
-----------------

Hello IBM CSR Consulting Community,

While attending a recent climate change conference in Washington, D.C. I met a person ("Linda Katz" <lkatz@love-your-planet.com>) who is involved in developing a not-for-profit website focused on creating sustainability solutions www.planet2025.tv   A group set up this website-- in a fashion similar to U-tube-- where anyone can post ideas and solutions to help improve the way we are treating our planet.  It is a free site (I think?) and is truly a great potential tool for teaching future leaders (currently our children) how to manage the planet.  The group who created the site is looking for people to (1) create content and (2) sponsor the site.  I was thinking that perhaps some of our IBM CSR community members may want to add some content?  Also, I thought I might at least try to see if any IBM business units may be interested in helping sponsor the site.  Please take a look at the video about the site below and let me know if anyone has any ideas about who I might try approaching in IBM, and then connecting one the site creators with them.  I was skeptical at first, but once I saw the video below and read through the site I determined it may be a humanitarian effort worth supporting in some way.
  • See the 5 min video about the site http://planet2025.tv/jump_in/t9664876130fd764a
  • About the site: Welcome to the semi-private Beta launch of Planet2025.tv! We are inviting a few creative people to join and add some stuff, so that when we invite the rest of the world, we have something to show them...YOUR CONTENT!  Planet2025.tv is all about sharing visions of sustainable lifestyles within the reality of one planet. Upload and share audio and video content that addresses the challenges and solutions we face. During this early phase, we expect you'll find a few bugs. If you are having problems, help us by using our contact form, and please check Our Blog often for the latest news and announcements. Please invite your friends to come and check out the site. Welcome!

Kindly,

Scot
...............................................................
Scot B. Holliday
Senior Consultant
Organization & Change Strategy
Tel...............................202.595.1322
Fax..............................202.595.1322
Mobile........................202.997.4808
sholliday@us.ibm.com

What Every Tech Pro Should Know About 'Green Computing'

What Every Tech Pro Should Know About 'Green Computing'
By
Marianne Kolbasuk McGee ,
March 10, 2007 (12:02 AM EST)
URL:
http://www.techweb.com/tech/197801530

Forget Al Gore and his Oscar for a global warming documentary. To gauge how today's trendy green movement is affecting computing, skip Hollywood and head to Wall Street.

There, Green Computing isn't a save-the-planet-for-our-kids movement. It's about the other green: cutting operating costs as the demand for computing power soars. It's a movement grounded in measurable, near-term results. "The top priority at hand is data center efficiency," says Sabet Elias, CTO of investment bank Lehman Brothers, which last year boosted energy efficiency 25% and set a goal of another 35% by next year.

It's not just financial services companies, with their huge processing needs, that stand to benefit from green computing. Companies in every industry, from nonprofits to consumer goods, are paying much closer attention to their power bills, as the amount spent on data center power has doubled

Elias wants to cut energy use 35% at Lehman Brothers.

Elias wants to cut energy use 35% at Lehman Brothers.
in the past six years. "The CFO is getting the bills, and IT is the biggest user of energy," says Robert Rosen, CIO of the National Institute of Arthritis and Musculoskeletal and Skin Disorders. IT execs like Elias and Rosen say they're happy their conservation efforts have a social good, but they measure their progress in dollars saved.

Still, IT execs would be wise to keep an eye on more than the economics of energy-efficient computing. Energy consumption has gotten so huge--U.S. data centers consume as much power in a year as is generated by five power plants--that policy makers are taking notice and considering more regulation. A group of government and industry leaders is trying to set a clear standard for what constitutes a "green" computer, a mark that IT execs might find themselves held to. Global warming concerns could spark a public opinion swing--either a backlash against big data centers or a PR win for companies that can paint themselves green. IT vendors are piling on, making energy efficiency central to their sales pitches and touting eco-friendly policies such as "carbon-neutral computing."

One under-the-radar example of what's changing is a long acronym you'll start hearing more: EPEAT, or the Electronic Product Environmental Assessment Tool. EPEAT was created through an Institute of Electrical and Electronics Engineers council because companies and government agencies wanted to put green criteria in IT requests for proposals. EPEAT got a huge boost on Jan. 24 when President Bush signed an executive order requiring that 95% of electronic products procured by federal agencies meet EPEAT standards, as long there's a standard for that product.

The tech industry's environmental impact is gaining attention. The United Nations estimates that 20 million to 50 million tons of computer gear and cell phones worldwide are dumped into landfills each year, and it's the fastest growing segment of waste, says Greenpeace legislative director Rick Hind. At most, 12% of PCs and cell phones are recycled, he says, putting chemicals such as mercury and PVC into the environment. "The good news is that computer companies are talking about greenness, touting green programs," Hind says.

CIOs will keep setting IT strategy against their bottom lines, but they're sure to face more questions about whether there's a chance to meet environmental goals at the same time. Here's a practical guide to what's happening in Green Computing, and why IT people should care.

Center Of The Problem
Data centers are the SUVs of Green Computing: impressively powerful, expensive to operate, usually woefully energy inefficient--and a big, fat potential target for environmental critics.

Energy consumed by data centers in the United States and worldwide doubled from 2000 to 2005, according to Jonathan Koomey, a consulting professor at Stanford University and staff scientist at Lawrence Berkeley National Lab. Data center servers, air conditioning, and networking equipment sucked up 1.2% of U.S. power in 2005. The biggest reason for the power surge: double the number of low-end servers, Koomey says.

As a result, some companies are chasing cheaper data center power. Google is building a data center on Oregon's Columbia River to tap hydroelectric power, while Microsoft builds nearby in Washington for the same reason. Financial services company HSBC is building a data center near Niagara Falls. Some such efforts are hardly green, however. Wyoming's trying to lure data centers with the promise of cheap power from coal-fired plants.

But chasing cheap power isn't practical for most companies. For Lehman Brothers, proximity to New York City is crucial because automated trading programs can't spare the milliseconds it takes for data to travel to upstate New York and back, though a remote data center could work for certain batch jobs. At lighting products company Osram Sylvania, the data center isn't so time sensitive, but the company wouldn't consider the hassle of building a remote center to lower power costs. "Finding the talent pool and network services you need aren't easy if you move too far away," says operations manager Dan Wilson.

For these companies, Green Computing means staying put and cutting costs. Fortunately, environmentally friendly options are rising as fast as energy prices.

Green Light
At too many companies, power's still on one budget and tech equipment on another, so IT pros don't pay much attention to power consumption when buying gear, Koomey says. For companies that have the budgeting figured out, the next step is deploying the technologies Elias is putting to use at Lehman Brothers:
server virtualization, grid computing, multicore processors, improved cooling, and "aggressive" use of blade servers. Koomey adds to that checklist power-supply appliances that more efficiently transfer power to servers, and building materials such as tiles with air holes that help with cooling.

Virtualization is one of the most effective tools for more cost-effective, greener computing. By dividing each server into multiple virtual machines that run different applications, companies can increase their server utilization rates and shrink their sprawling farms. This approach is so energy friendly that California utility PG&E offers rebates of $300 to $600 for each server that companies eliminate using Sun or VMware virtualization products, with a maximum rebate of $4 million or 50% of the project's cost, whichever is less.

The actual rebate may be far more modest, and it won't drive a virtualization project's return on investment. Swinerton Construction estimated it would get a $3,200 rebate from PG&E when it implemented VMware virtual machines, but it ended up with only $800 after PG&E's complicated calculations for power use, senior network administrator Sean Saulsbury says. But the project already has saved the company $140,000 this year, including servers it hasn't had to buy and $50,000 in power and cooling savings.

More-efficient processors are another critical energy-saving element, as Intel, Advanced Micro Devices, and Sun Microsystems all have gotten the green religion. Where chipmakers used to compete entirely on speed, now they also compete on performance per watt. Sun's betting on multicore chip efficiency to fuel interest in new high-end servers. Its 32-thread Niagara 1 chip, Ultrasparc 1, consumes 60 to 62 watts, while the Niagara 2 chip due in the second half will have 64 threads yet run at 80 watts, says chief architect Rick Hetherington. When Intel launched its quad-core Xeon chips beginning in November, it noted that they could deliver 1.8 teraflop peak performance using less than 10,000 watts, compared with 800,000 10 years ago using Pentium chips.

How big a difference can more-efficient processors make? Princeton University's plasma physics lab, funded by the Department of Energy, cut 75% of its annual power and cooling bill--from $105,000 in 2003 to $27,000 last year--while improving processing power three to four times. The lower energy use also means it's emitting about 28 fewer tons of carbon dioxide, says Paul Henderson, head of the lab's systems and network group. It did so by replacing a cluster of 200 servers based on AMD Athlon chips with Sun X2100 servers based on dual-core AMD Opteron chips.

For every kilowatt of energy consumed by a server, roughly another kilowatt is chewed up to cool it today. Highmark, the largest health insurer in Pennsylvania, uses about 150 blade servers, which reduce the space needed, but their heat and density suck up the cooling. Highmark uses a system that detects air temperature at the server racks and "tunnels" cooled air to the equipment using special racks from Wright Line, rather than cool the entire room. (Highmark takes the environment seriously enough that the toilets in its eco-designed data center are flushed using rainwater collected from the roof.) Other vendors, such as DegreeControl and, beginning this summer, Hewlett-Packard, offer cooling systems that rely on sensors to direct cooling to the needed spot.

Osram Sylvania's Wilson says most companies aren't interested in paying more up front, and they are watching energy improvements closely enough to know if they pay off. "You really need the discipline and patience to do this every day," he says.

Energy Ratings
Beyond their energy-guzzling, data centers are like SUVs in another way: They've caught policy makers' attention. Beginning this summer, the EPA must report to Congress national estimates for energy consumption by data centers, along with recommendations for reducing their energy consumption. It's just one of several ways lawmakers are looking to soften the environmental impact of computing.

"Voluntary guidelines" isn't exactly the rallying cry of an environmental revolution. Yet two forthcoming guidelines embraced by U.S. regulators, combined with tough laws from the European Union on hazardous materials, could go a long way toward forcing Green Computing onto businesses.

Let's start with EPEAT. Bush's directive to use EPEAT for government buying guarantees these standards will get some traction. But businesses will likely find them useful when they need a shorthand way to buy green.

Tech vendors buy wind power for ''carbon offsets''

Tech vendors buy wind power for "carbon offsets".
EPEAT was developed over the past three years by 100 stakeholders, including electronics manufacturers, with funding from an Environmental Protection Agency grant. They cover only PCs and monitors today but will likely be extended to servers, routers, printers, and maybe even cell phones.

The standards dictate 23 required criteria and 28 optional criteria for IT vendors covering eight broad categories, including energy conservation, recycling or disposal, packaging, and reduction or elimination of dangerous materials such as PVC, mercury, and lead. Some 350 products from 14 vendors are EPEAT-compliant, though none at the highest, gold rating.

EPEAT's energy-consumption criteria are based on the EPA's Energy Star requirements for PCs, and the "sensitive material" criteria require companies to meet the European Union's tough standards for limiting the hazardous chemicals and components used to make them.

The Energy Star ratings on PCs are just like those on refrigerators and washing machines, but the PC standard has become largely irrelevant for businesses, as the last update came five years ago. That will change in July, when the EPA issues new, more demanding specs for energy efficiency of PCs and high-end CAD/CAM workstations.

PC energy savings can make a difference to companies. Union Bank of California expects to reduce its energy costs 10% to 12% annually just by buying more energy-efficient PCs, says Julie LeDuc, the bank's VP of IT product procurement.

The EPA could have an even bigger impact by putting Energy Star ratings on servers, since they're the biggest electricity hogs in IT. The agency is developing tests to compare server energy consumption, but it doesn't expect to have methods ready until the end of this year.

Among the strictest regulations on the computer industry are the European Union's Restriction of Hazardous Substances directive, or ROHS. Introduced last year, the directive, which covers hardware sold in the EU, restricts the use of six toxic substances, including lead and mercury. China and India are expected to adopt versions of ROHS within the next year. The EU has two other significant green-tech rules: the Waste Electrical and Electronic Equipment regulations, which require sellers to take back any product they sell for recycling; and Registration, Evaluation and Authorization of Chemicals, which aims to improve the management and risk assessment of dangerous chemicals. The United States has no federal computer recycling mandate, but California's Electronic Waste Recycling Act is a "cradle to grave" program aimed at reducing hazardous substances in electronic products sold in that state. It includes a recycling fee of $6 to $10 paid by the buyer of PCs and monitors. Other states are likely to follow.

ROHS standards are slowly becoming de facto requirements, as the United States makes them part of the EPEAT standards and vendors look to standardize products worldwide. "There's a global marketplace for IT, so when there are new regulations by the EU, we all benefit," says Andrew Fanara, the EPA's Energy Star products team leader.

Vendor Frenzy
IT vendors also are applying green standards to their own operations. There are lots of reasons: new revenue opportunities, regulations, fear of a customer backlash, or just the desire to act like good corporate citizens. It's also good PR: Vendors are trying to make the case that "a key difference between us and our competitors is that we're more concerned about the environment," says Adam Braunstein, a Robert Frances Group analyst.

Salesforce.com in January announced an initiative to "offset its carbon footprint"--that is, compensate for the 19,700 tons of carbon emissions created by everything from its data centers to employee travel. That effort includes a partnership with Native Energy, a Native American-owned company involved in renewable energy projects, and $126,000 invested in five projects to develop alternative energy sources, including windmill and methane farms.

Sun's Project Blackbox is a complete virtualized datacenter built into a shipping container. -- Photo by Sacha Lecca
(click image for larger view)

Sun's Project Blackbox is a complete virtualized datacenter built into a shipping container.

Photo by Sacha Lecca

view image gallery
Sun created a Sun Eco office a year ago, led by VP Subodh Bapat, to oversee all of the company's green programs, including telecommuting but also core products such as low-power servers. It's touting its Project Blackbox--a data center in a shipping container--as not just portable but also 20% more energy-efficient than today's data centers.

Cisco also pulled most of its green initiatives under one umbrella, the Eco Board. Its efforts include using its own high-end videoconferencing and other IP tools to cut company travel by 20% a year--2 million miles--which the company estimates will lower its CO2 emissions by 10%, or 72,000 tons, says Laura Ipsen, VP of global policy and government affairs, who co-chairs the Eco Board. Cisco also is working with San Francisco, Seoul, and Amsterdam, to find ways to reduce CO2 through broadband and other networking technologies that support telework.

Dell in February launched "Plant A Tree For Me," where consumers pay an extra $2 for a laptop or $6 for a desktop to plant trees aimed at offsetting the equivalent computer emissions. It launched www.dell.com/earth to tout its green policies. HP says it has offered recycling since 1987, and today lets consumers send back equipment from HP or competitors. It keeps products such as old Digital Equipment VAX and Alphaserver machines available for parts, for instance. HP set a goal in 2004 to take back 1 billion pounds of product for recycling by 2007, and it brought in 164 million last year.

Reuse, Recycle--And Relax Recycling PCs has never been a huge priority for U.S. businesses. But some companies are finding a new motivation: security.

With rising concerns about identity theft and data breaches, companies need to know there's no sensitive data left on machines before they're trashed or recycled. That led Union Bank of California to more secure disposal that also proved to be more green.

The bank hires a company called Intechra that erases data from drives and removes asset tags and other forms of corporate identification, then refurbishes them for resale or grinds them up to recycle the material. None of it goes in a landfill. Union Bank pays $20 to $30 per PC for disposal and gets back 50% to 60% of any resale value, which is about $200 to $300 on high-end notebooks and $50 on desktop PCs. "Without this, we'd have to have an internal team scrub the old systems," procurement VP LeDuc says.

The city of Riverside, Calif., started a program to accept donated PCs, which the city promises to wipe clean, then give or sell to low-income families. It's part of an effort to get all of its citizens wired, which includes getting AT&T to build a city Wi-Fi network. The city pays up to $35 a unit, and CIO Steve Reneker is trying to get Dell and HP to sell units coming off lease. It's given out 750 computers so far, with a goal of 3,000 a year.

Recycling can get citizens connected, Reneker says.

Recycling can get citizens connected, Reneker says.
Telecommuting
IT can directly help reduce greenhouse gases if it enables telecommuting, though it's one of those things that goes in and out of fashion. The federal government, for instance, since 2001 has required agencies to have a formal policy to let eligible workers telecommute, but many have been slow to act, often because managers aren't sure how to deal with remote reports. Since June, the U.S. Patent and Trademark Office has had a "hoteling" program that lets up to 500 examiners work from home except for at least one hour a week when they need to go to a government office (a piece of red tape left from a rule by the Office of Personnel Management). Over the next five years, 500 more patent examiners will be permitted to work from home. Over at the trademark office, 85% of its 413 examiners work from home full time, except for the once-a-week check-in.

At Sun, 14,219 employees work from home two days a week, and 2,800 work from home three to five days a week. Some use "drop-in centers" closer to home that save an average of 90 minutes in commute time. About 40% of employees use the telecommuting program to some extent. That saves 6,660 office seats, cutting Sun's real estate costs by $63 million in the last fiscal year, says Sun Eco's Bapat. Reduced commuting by Sun workers avoided an estimated 29,000 tons of CO2 emissions, he says.

Gartner estimates that 12.6 million U.S. workers teleworked last year more than eight hours a week. But Gartner thinks that number will grow just 3% this year. Not exactly on pace to save the planet.

That's the reality of corporate green initiatives. Companies will push telecommuting if it helps them retain employees or cut office expenses. They might tally car emissions after the fact, but it won't drive many business decisions. "Green Computing is on the radar screens of CIOs, but it's not primarily motivated by eco-friendliness," says Jim Noble, CIO of Altria, parent company of Philip Morris and Kraft Foods. "The primary motivation is technology's cost." The good news for Mother Earth is that there are a lot of money-saving, eco-friendly steps just waiting for IT execs to take.

Illustration by Viktor Koen

Companies feel heat of global warming awareness

Companies feel heat of global warming awareness
Fri Mar 2, 2007 3:50PM EST

By Mary Milliken

LOS ANGELES (Reuters) - McDonald's Corp. is blogging on the environment, Starbucks Corp. has designed a green-themed online game, and Hilton Hotels Corp. aims to link manager pay to making its hotels greener.

While all of them say they have been working for years or even decades on pro-environment strategies, these corporate behemoths acknowledge that growing awareness of global warming among U.S. consumers is changing the way they work.

But they operate with caution because no one wants to be accused of "greenwashing" -- or what Mark Spellun, founder of eco-lifestyle magazine Plenty, calls "putting a green halo over themselves when it is completely undeserved."

Weather disasters like Hurricane Katrina, Oscar-winning documentary "An Inconvenient Truth" and U.S. President George W. Bush's push for fuel alternatives to oil have all heightened concern over climate change in the last year.

Experts warn that failure to address that shift in opinion could hurt the bottom lines of companies selling to consumers.

More than 60 percent of U.S. consumers hold government and big business directly accountable for global warming, according to a recent study by market research firm MindClick Group.

"Business needs to be aware of this and much more proactive in getting out in front ... because it will very quickly impact consumers' decisions when they are reaching for their pocketbooks," MindClick Chief Executive JoAnna Abrams said.

Using less energy, producing less waste, recycling and teaching customers to reduce heat-trapping carbon emissions are just some of the ways companies show they care about the planet.

"Because people are becoming more educated and aware, we are always going to be responsive," said Bob Langert, vice president for corporate social responsibility at McDonald's.

McDonald's (MCD.N: Quote, Profile, Research) took steps 15 years ago to reduce its packaging and more recently began keeping environmental scorecards for its vast stable of suppliers.

The world's largest restaurant company is now working on informing consumers of its green strategy, exploring digital routes via podcasts and blogs on its Web site, Langert said.

The world's top coffee shop chain, Starbucks (SBUX.O: Quote, Profile, Research), has also chosen a digital platform to interact with customers on the environment. On April 3, it will launch the Planet Green Game (www.planetgreengame.com).

WARY OF 'GREENWASHING'

"There is a lot of great awareness on the climate issues but there aren't a lot of solutions being provided," said Ben Packard, director of environmental affairs at Starbucks.

"We decided to take a shot at a serious game as a way to really engage younger people who are spending time online ... connecting them with tangible things they can do in real life."

Environmental activists note companies are more committed to fighting global warming than the U.S. government. While Bush wants to reduce dependence on oil, he does not want to adopt mandatory greenhouse gas emission cuts under the Kyoto treaty for fear they would hurt the economy.

"We have not been leaders on global warming in the United States, so without leadership on the political front, you see companies stepping up to the plate," said Elizabeth Sturcken, who heads corporate partnerships at Environmental Defense.

But at her organization, the emphasis is on making sure companies offer real solutions for the environment rather than just greenwashing with eco-friendly claims.

Athletic footwear and apparel giant Nike Inc. says it treads carefully, wanting to make sure its environmental strategies really work before publicizing them.

"People need to be cautious about any appearance of 'jumping on bandwagons' or making big statements they can't back up with facts," said Hannah Jones, vice president of corporate responsibility at Nike.

Matthew Hart, chief operating officer at Hilton (HLT.N: Quote, Profile, Research), is also wary of marketing green initiatives, such as its move to give hotel managers an environmental scorecard that affects their pay.

"I think it is more about doing the right thing than using it as a marketing tool," Hart said.

(Additional reporting by Nichola Groom, Alexandria Sage and Gina Keating)