Sustainablog

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

31.5.07

Two New Scientist articles: It's not just the world's platinum that is being used up at an alarming rate. The same goes for many other rare metals such as indium, which is being consumed in unprecedented quantities for making LCDs for flat-screen TVs, and the tantalum needed to make compact electronic devices like cellphones


Thanks to Brian for these
-JFB

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thought that these may be of interest to the wider audience, both are from New Scientist:



I found the one on the Earth's natural wealth to be very concerning!

Brian

[Must read] Economist Special Report on "Business and Climate Change"


(I don't usually send my newclips in "high priority" mode, please pardon this exception. But if you read only one of the newsclips I send -- ever -- , this is the one you should read. -JFB)


Cleaning up
May 31st 2007
From The Economist print edition



Alamy

Alamy


Business is getting down to cutting carbon, but needs more incentives to make much difference to climate change, argues Emma Duncan (interviewed
here)

Get article background

WHEN the notion of global warming first seeped into public consciousness in the 1980s, business took a dim view of it. Admitting that human activity was changing the climate would involve accepting some responsibility, which was likely to mean coughing up cash. So, in 1989, shortly after the establishment of the Intergovernmental Panel on Climate Change, the body set up under UN auspices to establish a scientific consensus on the issue, the big carbon emitters set up the Global Climate Coalition (GCC). It cast doubt on the science and campaigned against greenhouse-gas reductions.

The GCC folded in 2002. Its line of argument enjoyed a final flowering last year, in a startlingly inane television commercial put out by the business-funded Competitive Enterprise Institute (CEI). It showed pictures of trees (breathing in carbon dioxide) and a happy little girl blowing dandelion seeds (breathing out carbon dioxide). The punchline was: "Carbon dioxide: they call it pollution; we call it life."

These days very few serious businessmen will say publicly either that climate change is not happening or that it is not worth tackling. Even Exxon Mobil, bête noire of the climate-change activists, has now withdrawn funding from the CEI and appears to accept the need for controls on carbon emissions.

Businesses in every sector boast about their greenness. Annual reports elaborate on investments to offset companies' emissions. Of course the companies that do this tend to be those with few emissions, such as banks and retailers. Some oil companies do it too, but they offset only the greenhouse gases that they emit in producing petrol, not the emissions from the petrol itself. Power generators, which emit CO2 on a huge scale, do not do it.

Yet the corporate world's sudden conversion to greenery is not just fluff. Big emitters are beginning to price carbon into their investment plans, and to alter them accordingly. As a result, wind and solar energy are getting an enormous boost, the price of electricity produced from renewable sources is dropping fast and a flurry of projects to sequester carbon emissions from power generation is beginning to get under way. On the transport side, money is flowing into biofuels and electric cars.

Energy has become the hot new area for venture capitalists and universities. MIT's president, Susan Hockfield, has started an "energy initiative" to promote research into alternative sources, storage and cleaning up conventional sources; and student enrolment into energy-related courses has tripled over the past five years. In 2003, the most recent year for which figures are available, America's power-generation industry spent less on R&D as a proportion of turnover than did the country's pet-food industry, which suggests there is scope for more investment.

What is driving this shift towards cleaner energy? First, moral pressure. Thanks to a potent combination of science, Hurricane Katrina, a heatwave in Europe, Al Gore's admonitions and starving polar bears, the fight against global warming has acquired the force of a religion enhanced by celebrity endorsement. Climate change has gone from being dull and marginal to cool and core. Businessmen, like everybody else, want to be seen to be doing the right thing, and self-interest points in the same direction. Firms that seem to be on the right side of the argument have a better chance of pulling in clever, idealistic young people to work for them.


Reuters

Reuters
Al Gore, in the eye of the storm

Second, there is economic pressure. Governments increasingly accept the need to put a price on the damage carbon does, and make polluters pay that price. Fears about energy security mostly push in the same direction as those about climate change. Many governments are keen to reduce dependence on Middle Eastern and Russian oil and gas. That means encouraging energy efficiency and promoting domestic energy sources—which, aside from coal, tend to be the clean sort, such as solar, wind and biomass.

Europe already puts a price on carbon, through its Emissions-Trading System. The chances of a similar scheme being adopted in America rise with every passing hurricane. There is a plethora of subsidies on both sides of the Atlantic for clean-energy alternatives. Direct controls on emissions, for instance through vehicle fuel-efficiency standards, are being tightened around the world.

Yet emissions keep on rising. If greenhouse-gas concentrations are to be stabilised, then the carbon price or the support mechanisms for clean energy, or both, will have to rise or be adopted worldwide, or both. And if that happens, the returns on clean-energy investments will increase even further and the companies that have already invested in such businesses will have a head start over those that have not.

Moral and economic pressures have become intertwined, driving investors to push managers to go for cleaner investments. The Carbon Disclosure Project allows companies to report their emissions—and thus allows investors to see which companies don't. A group of investors, organised by Ceres and the Investor Network on Climate Risk, wielding $4 trillion and including powerful funds such as CalPERS, the Californian public employees' pension fund, and CalSTERS, the Californian teachers' pension fund, discriminates in favour of cleaner firms. The recent buy-out of TXU, Texas's main power-generator, led the company to abandon eight out of 11 planned coal-fired power stations because the private equity firm concerned, Texas Pacific, wanted to square the environmental movement.

Yet the shift towards greenery is also driven by more positive factors. For some huge firms, such as GE, Alstom and Siemens, a move towards clean energy spells opportunity. They sell power-generation equipment and aircraft and train engines. New regulations requiring companies to adopt cleaner processes will mean that capital equipment is replaced more quickly, to the benefit of such companies.




Even their customers increasingly realise that although climate change may push up their costs, it will also provide new opportunities—new markets, new technologies, new businesses and new money to be made. This could be disruptive. If carbon controls are tightened, the companies that will flourish are those that have positioned themselves well. In power generation that means companies such as Exelon and Pacific Gas & Electric, which have invested heavily in nuclear or renewable energy, whereas coal-heavy ones such as AEP will suffer. In the petroleum business, the winners will include BP, with its enthusiasm for renewables, and the losers Exxon Mobil. In the automotive industry, producers of fuel-efficient cars, such as Toyota, are more likely to do well out of carbon constraints than companies such as BMW.

Technological change may also allow some parts of the energy and transport business to invade each other's turf. The power utilities hope to gain from the enthusiasm for plug-in electric cars, which could spell trouble for the oil companies. Biofuels, too, are a potential threat to them, not only because every farmer and forester may build a cellulosic ethanol plant in his backyard, but also because companies such as DuPont may prove better at making the fuels of the future. The power utilities, in turn, may suffer if fuel-cell technology turns cars into net producers, rather than consumers, of electricity. But these things will happen only if carbon constraints are tightened.

This survey will examine how climate change is affecting business, and how business can affect climate change. It will concentrate on industrial emissions rather than on agriculture and deforestation (which produce lots of carbon dioxide without involving business much) but will leave out air travel, on which this newspaper will publish a survey in two weeks' time. It will examine what is driving change in the sectors responsible for most emissions, the nature and extent of that change, and its likely impact. It will argue that business has changed nothing like enough to have a chance of averting global warming—but that, given the right incentives, it can. Whether that happens or not will be largely determined in America.


Everybody's green now

May 31st 2007
From The Economist print edition

How America's big companies got environmentalism

MEETINGS of the Edison Electric Institute, the trade association for the American power utilities, do not normally make waves. But the one that took place at Scottsdale, Arizona, on January 10th of this year was different.

AP Power and positive thinking

Up until then, the EEI had been split between the companies arguing for carbon constraints—usually those, like Exelon, PG&E and Entergy, with more gas and nuclear energy than coal—and those arguing against—usually those, like TXU and Southern, with lots of coal. Since coal provides 50% of America's power, the coal utilities had mostly had the upper hand, and the organisation had advocated only voluntary restraint.

But this year the new chairman, Jim Rogers of Duke Energy, asked each of the 50 chief executives present what they thought the government should do about carbon. "It was pretty clear going round the table that the vast majority wanted to move on," says Mr Rogers. Afterwards the EEI announced that it was calling for "regulation". It balked at the word "mandatory", but the implication hung in the air.

 

Power generation is the biggest source of CO2 in America. America is the biggest source of CO2 in the world. If America continues to refuse to control its carbon-dioxide emissions at the federal level, there is no chance that countries such as China and India, whose emissions will soon overtake America's, will control theirs. The EEI's turnaround was therefore significant.

Similar things have been going on in other industries. Companies that once pooh-poohed the idea of climate change have gone quiet; others have come out loudly in support of emissions controls. The shift culminated, in January this year, in the establishment of the United States Climate Action Partnership calling for "strong" federal action to combat climate change. The initiative was launched by ten blue-chip companies, along with four NGOs. Membership has now doubled, and includes GM, GE, BP, Alcan and Alcoa.

Attitudes in corporate America have changed in part because a federal system of controls has come to look like the lesser of two evils. America's states have already started to legislate to cut emissions. California is leading the charge. Last September it passed Assembly Bill 32, under which carbon emissions are to be cut to 1990 levels by 2020 and to 80% below 1990 levels by 2050. It will probably be implemented through a European-style cap-and-trade scheme. And California has adopted a low-carbon fuel standard that will require oil companies to cut the carbon content of their petrol. Other state governments have been watching California's initiative carefully and seem likely to follow its lead.

For companies, a diverse patchwork of state-wide systems is much harder to cope with than a single nationwide system. According to Ken Cohen, vice-president of public affairs at Exxon Mobil, "we need a uniform and predictable system. If the states are left to their own devices, we won't get that. It needs to be a federal system." And since the Democrats took over Congress last November, the chances of America adopting federal controls have risen sharply. Bills are proliferating. Dan Kammen, of the Energy and Resources Group at the University of California at Berkeley, says he has never had so many calls along the lines of: "I'm Congressman X and I need to write a high-profile bill on climate change. What should it say?"

But in accepting the idea of federal regulation, companies are not just bowing to the inevitable. There is money in it, too. If the American government adopts a cap-and-trade system (see article), it will hand out permits to pollute. They are, in effect, cash. According to Paul Bledsoe of the National Commission on Energy Policy, those allowances are likely to be worth in the region of $40 billion. Companies therefore want to be involved in designing those regulations. As Mr Rogers explains: "There's a saying in Washington: if you're not at the table, you're on the menu."

The process has become self-reinforcing. In order to be seen to be green, companies have to lobby for emissions controls. That increases the pressure for emissions controls, which in turn increases the need to be seen to be green.

The more that American businessmen examine the European system, the less alarming the prospect of carbon constraints begins to look. Not only has it resulted in a lot of cash being handed over, but it has also created a whole new business: the carbon market.


Trading thin air

May 31st 2007
From The Economist print edition

The carbon market is working, but not bringing forth as much innovation as had been hoped

EVERY year the average sow and her piglets produce 9.2 tonnes of carbon-dioxide equivalent through the methane emissions from their effluent. In the past, that has been a problem both for the environment and for pig-farmers. In developing countries the pig-effluent collects in open lagoons which smell bad and get infested with flies. Sometimes it flows straight into nearby water systems.

Now this problem has become an opportunity. Bunge, an agricultural-commodities business based in America, builds lined and enclosed pools to collect the effluent and captures the methane that it emits. The farmer can use the gas to generate electricity. By preventing methane from escaping into the atmosphere, Bunge creates a credit which it can sell on the carbon market. The farmer gets to keep 20-30% of the value. Bunge has 40 such projects operating in Brazil and is planning to expand into Mexico, Guatemala, Peru and the Philippines.

 

The carbon market is truly innovative. Although it works like any commodity market, what is being bought and sold does not exist. The trade is not actually in carbon, but in not-carbon: in certificates establishing that so many tonnes of carbon dioxide (or the equivalent in other greenhouse gases) have not been emitted by the seller and may therefore be emitted by the buyer.

The purpose of setting up the market was, first, to establish a price for carbon and, second, to encourage efficient emissions reductions by allowing companies which would find it expensive to cut emissions to buy credits more cheaply. It has had some success on both counts—some would argue too much on the second.

A carbon price now exists, established by the European Emissions-Trading Scheme (ETS). In its first phase it has been volatile (see chart 2) because information about Europe's industrial emissions was poor, so the market got a shock in early 2006 when it emerged that the European Commission had been too generous with the allowances it handed out to industry. Phase one allowances (2005-08) are now virtually worthless. But the commission has learnt its lesson and got meaner with allowances, thus pushing up the price in phase two.


The supply of carbon credits comes principally from two sources. The first is the allowances given to companies in the five dirty industries covered by the ETS (electricity, oil, metals, building materials and paper). The second source of carbon dioxide lies outside Europe. The European Commission linked the ETS to the "clean-development mechanism" (CDM) set up under the Kyoto protocol. This provides for emissions reductions in developing countries—such as those on the Latin American pig farms—to be certified by the UN. Such "certified emissions reductions" (CER) can then be sold.

The demand for carbon credits comes mostly from within the ETS, from polluters who need certificates allowing them to emit carbon. There is some demand from Japan, which has a voluntary scheme, and from companies and individuals elsewhere in the world who want to offset their emissions for moral reasons, or to make themselves look good.

The trade is now sizeable. Some €22.5 billion-worth ($30.4 billion) of allowances were traded last year, according to Point Carbon, a data-provider, representing 1.6 billion tonnes of CO2—a huge increase on the €9.4 billion traded in 2005. Europe's ETS made up about 80% of the total value.

Developing-country CERs accounted for about €4 billion of last year's trade: 562m tonnes of CO2. According to New Carbon Finance, a research company, carbon funds worth $11.8 billion have been raised so far. Half of that total is managed from London. Climate Change Capital, a niche investment bank, raised $130m for its first carbon fund, launched in July 2005; its second, launched a year later, is now worth around $1 billion. According to Tony White of Climate Change Capital, all the money for the first came from hedge funds, which like risk. By the time the second fund was established, more cautious investors, such as pension funds and banks, were prepared to put money into it.

The money has gone mostly into projects in developing countries to produce CERs. Bunge's Brazilian pig-farmers are making CERs out of their animals' effluent. But the bulk of the investment has gone into greenhouse-gas capture in China.


Cheap and cheerful

The most potent greenhouse gas is HFC-23, a by-product of HCFC-22, a chemical used in, among other things, fridges. It is now mostly banned in the developed world. Its global-warming effect is, tonne for tonne, 11,700 times greater than that of carbon dioxide, so it is good to get rid of it, and cheap, too; capturing it and burning it off costs less than €1 for the equivalent of one tonne of carbon dioxide. These days China produces most of the world's HFC-23. That—along with the fact that the Chinese government is efficient to deal with—explains why 53% of the total volume of CDM projects in 2006—worth around €3.5 billion in total—went to China.

The very cheapness of cutting emissions of HFC-23 makes the trade controversial. Credits costing less than €1 to produce have been sold on the market for up to €11. Factories have found that their damaging by-product, HFC-23, can be more valuable than their main output. The Chinese government, realising how much money there is in this business, has imposed a tax of 65% on revenues from it, and in February this year it launched its own $2 billion CDM fund. So European consumers, who are paying for greenhouse-gas abatement through their electricity and other bills, are contributing billions of dollars to the Chinese government's coffers via the CDM.

Easy options—HFC-23 and other fabulously dirty (ie, profitable) industrial gases—will soon run out. Guy Turner at New Carbon Finance reckons that the days of the CER that costs less than €1 to produce are over, and that the range is now more like €1-5. But there is plenty of scope at that level. China's industrialisation is a fast and dirty business, and there will be no shortage of greenhouse gases produced there for rich-country money to clean up.

That is part of the problem. Of the 65% of companies surveyed by Point Carbon earlier this year which claimed that the ETS had led them to abate their emissions (up from 15% the previous year), most were planning to buy credits rather than cut their own emissions. Yet the ETS was intended to cut European emissions as well as Chinese ones.

This is happening on a small scale. At times the carbon price has made it worth power companies' while to switch from dirty fuels to cleaner gas. "We massively reduced our lignite production when the CO2 price was at its height," says Alfred Hoffmann, head of portfolio management in Scandinavia and Germany for Vattenfall, a Swedish power company. Lignite is dirtier than black coal. But then gas prices rose, making switching less attractive.

FLPA Bringing home the methane

The carbon price has delivered some of the innovation that it was supposed to generate. Shell, for instance, is pumping CO2 from a refinery in the Botlek area of the Netherlands into 500 greenhouses producing fruit and vegetables, thus avoiding emissions of 170,000 tonnes of CO2 a year and saving the greenhouse owners from having to burn 95m cubic metres of gas to produce the CO2 they need.

Alcan, an aluminium company, is planning to use the heat from one of its smelters to increase the efficiency of its power-generation plant at Lynemouth in Northumberland in Britain. Wyn Jones, managing director of Alcan's British smelting and power-generation operations, says this will save 150,000 tonnes of CO2 a year (€3m if the price of CO2 is around €20 a tonne, as Alcan expects) and 60,000 tonnes of coal (£2.1m, or $4.2m, at around £35 a tonne). He is not sure how much the project will cost, but is reckoning on a payback period of around five years.

But European emissions overall are not falling, which suggests there may not be as much switching out of coal, or as much technological innovation, as had been hoped. Chinese CERs are too cheap and the carbon price is too low and too volatile. Even when it was bouncing around at €15-25, it did not seem to encourage much new investment. According to Bjoern Urdal of Sustainable Asset Management, who took a detailed look at the effects of the carbon price on the German electricity market last year, replacing old coal-fired power stations with gas-fired ones became worthwhile only at a carbon price of €33. He has not done the sums since last November, when the European Commission chucked out Germany's "transfer rule" (which would have exempted new coal-fired stations from the ETS for 14 years), but reckons the break-even point will have come down to more like €25.

That helped raise the carbon price. So did the commission's decision to slash national governments' planned allocations to industry for the period 2008-12. The price of phase two allowances has risen to a level high enough to get some power generators to switch from coal to gas at the margin when the gas price is moderate; but not high enough to get them to replace coal-fired power stations with gas-fired ones—nor to encourage much of the innovation that carbon trading had been expected to spawn.


Irrational incandescence

May 31st 2007
From The Economist print edition

People can't be bothered to make easy energy savings

SOME ways of cutting carbon are cheaper than others. So, at different carbon prices, different sorts of methods of abatement become worthwhile. Vattenfall, a Swedish power utility, has tried to quantify which ones would be worth undertaking at what price (see chart 3).


The result is a testament to economic irrationality. The measures below the horizontal line have a negative abatement cost—in other words, by carrying them out, people and companies could both cut emissions and save money. At a macroeconomic level they would boost, rather than reduce, economic growth.

Lighting, for instance, accounts for some 19% of the world's electricity use. A standard incandescent light bulb costs around €1, says Theo van Deursen, chief executive of Philips Lighting, and uses €15-worth of electricity a year. A low-energy one costs €5-6 and uses €3-worth. The payback on investing in a compact fluorescent bulb, therefore, is less than a year. Yet low-energy lighting makes up only 30% of Philips's sales. Mr van Deursen admits to being disappointed. Sales are rising faster in the developing world: there, people pay more attention to electricity bills than they do in the rich world.

 

Economists trying to explain this apparent irrationality suggest that the savings are too small and the effort involved in change too large. People find their electricity bills too boring to think about; within companies, those responsible for keeping bills down may not have the authority to spend the necessary capital. Another explanation is the agency problem: that the developer who would have to pay higher capital costs up front will not be forking out for the electricity bills. Besides, people buy houses not because they have good insulation but because they have pretty views.

Compared with pursuing greater energy efficiency, the abatement measures into which so much money is now being poured look rather expensive. Carbon capture and storage and wind and solar power, for instance, all have positive, and relatively high, abatement costs.

But the cheapest sources of abatement are difficult for policymakers to get at. Billions of different actors are involved. They cannot be targeted in the way that a few hundred factories can. What is more, a moderate carbon price is not likely to be effective, since people clearly do not care enough about cost.

One policy option is to decouple the utilities' revenues from the amount of electricity they sell. That gives them an incentive to increase the efficiency of power usage rather than to produce and sell extra power. California is already doing this, which is presumably why electricity prices there are among the highest in America, while consumption is relatively low.

Energy-efficiency standards, such as building regulations, are another option. Economists generally prefer to avoid rules that specify what companies can produce and how, because they require governments, rather than markets, to allocate resources, and markets tend to do a better job. But if, as in this case, a public as well as a private good is involved, and the market does not seem to be doing its job properly, there is an argument for governments giving it a nudge.

There are lots of energy-efficiency regulations in place already, and they are being tightened. Incandescent light bulbs are the top target at the moment. Both the European Union and Australia said earlier this year that they are planning to ban them. But the man in the vanguard of this green revolution is Fidel Castro, who started phasing them out two years ago.


Fairfield v the valley

May 31st 2007
From The Economist print edition

Two competing models for the clean-energy business

TWO men represent two very different models of the clean-energy business. One is Vinod Khosla, chief executive of Khosla Ventures, a company headquartered in Menlo Park, California, which employs ten people. The other is Jeff Immelt, chief executive of GE, a company headquartered in Fairfield, Connecticut, which employs 300,000 people.

Mr Khosla, formerly of Sun Microsystems and Kleiner Perkins Caufield & Byers, the venture-capital firm that launched many of the big names of the internet boom, is now the most visible venture capitalist in the clean-energy business. There is plenty of competition. Silicon Valley is piling into the business. John Doerr, the valley's best-known venture capitalist and one of Mr Khosla's former partners at Kleiner Perkins, also invests in clean-energy start-ups, sometimes alongside Mr Khosla. Larry Page and Sergey Brin, the founders of Google, have invested in Nanosolar, a company using solar thin-film technology. Microsoft's Bill Gates has invested in Pacific Ethanol, a company building bio-refineries in California.

 

California is buzzing with clean-technology projects: breakthrough energy-storage systems; devices for making electricity grids more intelligent; enzymes that chomp their way through lignin to make ethanol; algae that can be turned into fuel. As the home of some of America's best universities, it is a natural place for such ideas to flourish. The notion of man-made climate change has been accepted for years in most universities, and the climatologists' work has influenced other academic departments. Stanford and the University of California at Berkeley both have big clean-energy programmes.

California's tough energy-efficiency and emissions regulations have given its businesses an interest in investing in clean energy. And some of the state's VCs are keen to spend the cash they made from the internet on improving the world. Not that they plan to lose money on it: investing in clean energy promises to satisfy both idealism and greed.

Mr Khosla is backing some 27 companies in four clean-energy areas: replacing oil, replacing coal, developing new materials and energy efficiency. His model is the usual one: he finds an inventor or a good piece of intellectual property, adds some money and an experienced manager and waits for it to flourish or fail.

Landov Khosla thinks small

Bud Klepper, for instance, had been working for years on a process to make cellulosic ethanol without anybody paying much attention. But then he met Mr Khosla, who liked his scheme, introduced him to Mitch Mandich, a former Apple employee, added some money and stirred. In February the resulting company, Range Fuels, announced that it would build a commercial-scale cellulosic ethanol plant in Georgia, using the state's abundant wood offcuts as feedstock.

The VCs who used this model to transform the computer business reckon that they can do the same for the energy business. "The investments we're making are like those we made in the internet," says Mr Doerr. "They're based on technological and scientific innovation, they're driven by entrepreneurs, and they're distributed, in the way that the internet was distributed." The VCs also reckon that they can topple incumbents, as they did in the information and communications business. "Look at voice telephony," says Mr Khosla. "These days, it's basically free. Ten years ago, people told me that would never happen. AT&T believed that—and look what happened to them."

At the other end of the scale is Mr Immelt. "When I was looking at the growth potential of our businesses three years ago," he says, "I saw an emphasis on clean energy and energy efficiency, on scarcity and the rise of regulatory pressure. And I thought—we've got something here." And so he developed the theme, making GE the big company best known for espousing greenness. "Green is green" has become a company mantra. And GE was among the ten companies that launched the United States Climate Action Partnership.


Green synergies

The vehicle that Mr Immelt settled on for promoting green products was Ecomagination. This brings together products from GE's different businesses that are either intrinsically green—like wind turbines—or have been certified as being more competitive and producing fewer emissions than whatever else of that sort is on the market. Not all GE's products get through. The GEnx aero engine, which powers Boeing 747s and 787s, did, but the new-generation CFM engine for narrow-bodied jets did not, because its emission levels are no lower than the competition's. Ecomagination's sales have been rising slightly faster than GE's, by 12% a year rather than 9%. Its energy products have been rattling along.

Landov Immelt thinks big

To a large extent, Ecomagination is a marketing device. GE was selling all those aero and power-generation engines long before Ecomagination was invented, and "fuel efficiency has always been the number one criterion for airline-engine economics," says Tom Brisken, general manager of the GEnx programme. But Mr Immelt has also made sizeable clean-energy investments. He bought Enron's wind-turbine business out of bankruptcy for $358m. Sales rose from $200m in 2002 to around $4 billion last year. His purchase of Chevron's integrated gasification combined-cycle technology—a potentially cleaner but costlier coal-burning technology for power stations—has still to prove itself, because GE has not yet sold a plant.

GE's enthusiasm for greenery is informing its R&D effort. The company is, for instance, looking at radical ways of making aero engines cleaner. "Suppose we used a totally different fuel. Suppose we used a bio-derived fuel." says Sanjay Correa, GE's global technology leader for energy and propulsion. Biofuels are widely believed to be out of the question for aero engines because they are less energy-intensive, so more is needed to travel the same distance. But Mr Correa points out that aeroplanes these days have such a long range that they can cross the Atlantic with their tanks only one-third full. "We've done tests. We've studied this pretty hard. It works."

So who is best placed to win in the clean-energy stakes: the VC who helped transform the computer business or the chief executive of one of the great incumbents? The VCs point out that the energy business is becoming more friendly to small companies. Electricity generation is becoming more distributed as wind farms and solar panels feed into grids. Ethanol can be produced in backyard plants.

True; but that is happening at the margin. The big companies still dominate. According to Michael Liebreich of New Energy Finance, only around $2 billion of the $71 billion that went into the clean-energy investment last year was VC money.

The VC model is an excellent way of generating innovation, and fine for the early stages of clean-energy companies, but ultimately does not suit the energy business as well as it suits computing. Moving molecules around takes far more capital investment than moving bits of information around. Shipping fuel from refineries to petrol stations and running electricity grids are operations best done at scale; and the energy business's hunger for capital ensures a measure of protection for incumbents. Mr Khosla may very well produce some exciting new technologies and thus generate some valuable intellectual property; but it is Mr Immelt who will exploit them.


Sunlit uplands

May 31st 2007
From The Economist print edition

Wind and solar power are flourishing, thanks to subsidies

Imaginechina

LAST year Shi Zhengrong, a Chinese solar engineer, gave a new-year's party for his 3,500 employees in a sports stadium in Wuxi, in eastern China. He had much to celebrate. The company he started in 2001, Suntech, is now the world's third-largest manufacturer of solar cells, after Sharp and Q-cells. It is listed on the New York Stock Exchange and is worth around $5.5 billion. Mr Shi, aged 44, owns 40% of it. He was the richest man in mainland China last year, but according to Forbes magazine has been superseded by Wong Kwong Yu, an electrical retailer.

Renewable sources currently provide 13% of the world's energy needs. The main sources of renewable energy at present are geothermal and hydro-electric power and biomass. Scope for increasing the contribution of the first two is limited by geology. Scope for private-sector involvement is limited because building dams means turfing people out of their homes, so large-scale hydro-electric projects are undertaken only by governments.

Biomass provides 10% of the world's primary energy needs, mostly in developing countries, where villagers burn cow dung on basic stoves. There are a few niches in developed markets: in Britain, for instance, local councils increasingly require new developments to get 10-20% of their energy needs from renewable sources. Putting a biomass water-heater in the basement tends to be easier than sticking a windmill on the roof.

But the technology for producing electricity from biomass has not changed much in recent years, and shipping manure and woodchips over long distances is expensive. That leaves wind and solar power as the main sources of growth. Stirring figures are bandied about. According to the US Department of Energy, for instance, America could supply its entire energy needs by covering a mere 1.6% of its land area with solar cells.

Wind and solar energy already play an important part in a few countries. Around 20% of Denmark's electricity comes from wind and about 80% of China's hot water from solar energy. But worldwide those two energy sources barely register.

In the past they have flourished when oil crises pushed subsidies and investment their way. At other times they have survived in a tiny niche, providing power to isolated communities. But now they are enjoying their biggest boom ever. Solar photovoltaic power has grown by an average of 41% a year over the past three years; wind has grown by 18% a year.

The supply side offers part of the explanation. During the wind boom of the 1970s turbine blades were around 5-10 metres long, and turbines produced no more than 200-300kW of energy each. The energy they produced cost around $2 per kWh. Now the blades are up to 40 metres long and turbines produce up to 2.5MW each at a cost of 5-8 cents per kWh, depending on location (coal-fired electricity, depending on the plant, costs 2-4 cents per kWh). And there are even 5MW prototypes in existence, with 62-metre blades.

Much the same has happened to solar photovoltaic cells. The efficiency with which they convert sunlight to electricity has increased from 6% when they were first developed to 15% now. Their cost has dropped from around $20 per watt of production capacity in the 1970s to $2.70 in 2004 (though a silicon shortage has pushed prices up since).


Making hay while the sun shines

Increased demand has fuelled the boom. Power companies are getting more interested in renewables. Electricity generation is particularly vulnerable to a carbon price, and the size of companies' emissions would determine how hard they would be hit by it (see chart 5). Coal-heavy companies such as American Electric Power and Southern Company would suffer more; companies such as PG&E and Exelon, which generate a larger proportion of their output from nuclear and renewables, would do better.

Many governments (see table 6) have set targets for the proportion of their country's energy that should come from renewable sources. Subsidies are one way to try to meet those targets. There are, broadly, three systems in operation: the expensive and effective (Germany's and France's feed-in tariffs), the complex and ineffective (Britain's and Italy's quota-and-trade system), and the unpredictable (America's production tax credit).

Germany's and France's feed-in tariffs give generators a fixed payment for the electricity they provide. Wind and solar energy have both grown fast in Germany, but the guaranteed price for solar energy is especially generous (54-57 cents per kWh against 8.4 cents for wind). According to Julie Blunden of SunPower, an American solar-cell manufacturer and distributor, Germany's feed-in tariff means that, as a generator of solar power, "you sell power to the utility at 50 cents and you buy it from the utility at 20 cents. You're clearing 30 cents." According to Jerry Stokes, president of Suntech Europe, the payback period for a solar panel is eight or nine years, whereas the price for the electricity it generates is guaranteed for 20. Germany is the principal source of Mr Shi's wealth: in 2004 it was buying 90% of his output. The main customers are farmers who put panels on the roofs of their barns.

One consequence is a silicon shortage which has pushed up the price of solar panels, making them harder to afford in countries sunnier than Germany that could use them more effectively. Many panel-makers have signed long-term contracts with silicon producers at exorbitant prices. The boom has spurred investment in silicon production which is likely to lead to a lot of new capacity in a couple of years, and some of those cell producers are likely to be in trouble. Another consequence is a big bill for taxpayers and electricity consumers. Germany's feed-in tariff may cost consumers an extra €2 billion-2.9 billion a year in higher energy prices.

Under Britain's Renewables Obligation, a set proportion of the electricity that power distributors buy must come from renewable sources; if they fail to meet their obligation, they must put money into a pot to be shared among the renewables providers. The system is complex and the resulting price uncertain; which, along with planning constraints, explains why so much capacity has been planned and so little built. One consequence is that the pot of money is divided between few developments, which are therefore highly profitable (see chart 7). Another is that Britain will not meet its target of producing 10% of its electricity from renewables by 2010. That's one reason why, in its energy white paper published on May 23rd, the government promised a radical revision of the scheme.

America's production tax credit gives renewable-energy producers 1.9 cents per kWh, enough to encourage plenty of investment in wind, since in breezy places it is already competitive with some coal and gas generation. But the government has failed to renew it in some years, so investment in the business has slumped. Steve Bolze, GE's vice-president of power generation, says that uncertainty about the future of the production tax credit caused their turbine sales to halve between 2003 and 2004; sales then tripled, to 1,500 in 2005, when customers were once more confident of the subsidy.

Governments are using sticks as well as carrots to push investment in renewables, requiring a proportion of the energy sold to come from renewable sources. In America, for instance, 21 states have renewable portfolio standards requiring a certain proportion of power sold—20% by 2017 in California, for instance—to come from renewable sources. But it is in China that government fiat is having the most dramatic effect. The country currently meets 7.7% of its energy needs from renewable sources (including large-scale hydro). In 2005 it announced that the figure would rise to 15% by 2020. That has led to a huge rise in demand for wind turbines.

China's turbine market, says Paulo Soares, a Brazilian who runs the Chinese operations of Suzlon Energy, India's biggest wind company, has increased sevenfold in two years. Suzlon has just opened the world's biggest turbine factory in China. All the big foreign makers—Spain's Gamesa, Denmark's Vestas, GE and Suzlon—have piled in, along with a lot of smaller ones. But the Chinese government is determined to build a local industry, demanding that 70% of parts should be locally produced. There are now nine Chinese turbine-makers.

Despite the current boom, there are constraints to the growth of renewables. One of the reasons why wind power has developed so slowly in Britain is the proliferation of little local battles over planned developments. Scotland, which is empty and windy, sounds like a good bet, but most of the demand is in England, so the electricity would have to travel a long way. Highlands Before Pylons is a pressure group that campaigns against the aesthetic consequences of long-distance transmission. Such groups, not wanting to appear hostile to a virtuous power source, tend to argue in favour of offshore wind farms, but these are considerably more expensive than onshore ones.

Despite the difficulties, however, money is flowing in (see chart 8). The NEX represents pure-play clean-energy companies, some of which have grown big. Denmark's Vestas, for instance, with a market capitalisation of $12.5 billion, is the world's biggest turbine producer. In wind energy, GE is playing catch-up.


The beauty of being big

But, for the big energy companies, catching up may not be all that hard. BP, for instance, has been producing solar cells, in a small way, for 30 years. Now it is investing heavily, in its much-vaunted determination to look Beyond Petroleum. In a joint venture with India's Tata, for instance, it expects to produce 300MW of solar cells a year by 2010; and in March this year it announced that it will also build a 300MW factory in Spain. Through a joint venture with Clipper, an American turbine manufacturer, it plans to turn itself into a significant wind-power generator.

BP has two advantages in the renewables business. It knows about energy, and it is big. Next year it will devote a mere 4% of its capital expenditure to renewables. But that adds up to $800m which, for most renewables companies, is a lot of money.

Is it money well spent? Some do not think so. "Exxon was a big investor in solar in the 1970s," says Ken Cohen, Exxon Mobil's head of public affairs. "We got out of it because we couldn't make money out of it. We bring nothing unique to solar, wind or nuclear. But we certainly bring much that's unique to the world's petroleum business. That's a full-time job."

Technology will in part determine who is right. If renewable energy goes on getting cheaper, it will get more attractive. Vlatko Vlatkovic, head of GE's renewable energy research, reckons that wind power is heading towards 3-4 cents per kWh. To achieve that, he says, the length of turbine blades needs to increase to 90 metres. The weight of the central cell, positioned between the blades, is a problem. "At the moment the cell weighs 300 tonnes. That's sitting 100 metres up in the air. Just scaling up is not viable. All the stuff in the cell has to get lighter, so the way we build these generators has to change."

But wind is now so big—it is approaching the size of GE's gas- and steam-turbine business—that companies are investing seriously. Up to now, says Mr Vlatkovic, turbines have been made from different technologies spliced together: propulsion equipment developed for ships and standard variable-speed drives used in pumps and conveyor belts. "Now the business is so big that we can design equipment specifically for wind."

There is an upside to the silicon shortage: it has accelerated investment in thin-film technologies that use much less silicon. Silicon Valley is particularly interested in these developments. Two of the most advanced thin-film companies are Miasole and Nanosolar. John Doerr has invested in the first and Larry Page and Sergey Brin in the second.

 

Politics will also help determine renewable energy's future. If the carbon price and subsidies rise, its prospects should be good. But wind and solar are not as vulnerable to politics as the carbon-free technology that, in many ways, has the most potential to free the planet from fossil fuels: nuclear power.


Boom

May 31st 2007
From The Economist print edition

As security and climate concerns rise, nuclear power may be coming back

JAPAN STEEL WORKS is in an enviable position. The core of a nuclear power plant demands huge steel forgings that weigh up to 240 tonnes. With the nuclear industry in the West in decline for nearly three decades, Japan Steel Works is one of the few companies left that can do the work. According to Yoshitaka Sato, who is in charge of the company's exports of forgings and castings, orders have doubled over the past two years. Capacity has just been expanded, but slots are now fully booked to the end of 2010 and further capacity may be added.

REX Rising again?

The nuclear industry has been chugging along in Asia, but in the West safety worries have caused it to stall. Nuclear power stations are, therefore, ageing. They contribute a sizeable chunk of electricity in the rich world—18% in Britain, 19% in America and 80% in France—so if they are replaced by coal-fired stations, CO2 emissions will rise swiftly. Hence the recent revival of interest in nuclear power.

In Europe, this has so far been modest. Finland is building a reactor, and France, which never lost its enthusiasm for the technology, has placed a firm order for one. Britain intends to speed up the planning process for nuclear plants, and nervousness in Germany about energy security has led to a heated debate about a law requiring the phase-out of nuclear power.

 

It is developments in America, which has 104 of the world's 443 nuclear plants, that excite the industry. No new plants have been ordered there since the accident at Three Mile Island in Pennsylvania in 1979 (when radioactive gas escaped from a nuclear power plant), though some that were being built were completed. Many proved a burden. In 1988, Public Service Company of New Hampshire became the first American utility since the Depression to go bankrupt, mostly because of the unexpected costs of a nuclear plant.

Since then, three things have changed. First, the approvals process was reformed in the 1990s. An application alone can cost $20m-100m, so that matters. "The intention was to offer a degree of comfort to Wall Street," says Jeff Merrifield, one of America's five nuclear commissioners.

Second, there was global warming. "Our recognition that carbon was a problem was a tipping-point in the decision-making," says Jim Rogers, chief executive of Duke Energy, which already has seven nuclear plants and is planning to build another. "You wouldn't take such a big risk if you weren't going to be in a carbon-constrained world."

Third came the Energy Policy Act of 2005, which gave the industry a production tax credit worth 1.8 cents per kWh, provided $1.25 billion for innovative technologies and made available $2 billion in insurance against regulatory delays. For a plant to be eligible, the application has to be in by the end of next year, so the race is on: 22 companies have told the Nuclear Regulatory Commission (NRC) that they are planning a total of 32 new reactors.

Suppliers are gearing up. "We have been pouring in money and people," says Andy White, president of GE Nuclear Energy. "We're making a big bet on nuclear." Last year Areva, the big French nuclear-construction company that is building the Finnish plant, bought Sfarsteel, a loss-making company which produces some of the large steel forgings needed. Toshiba bought Westinghouse, which has bounced among owners over the past decade. Now Mitsubishi Heavy Industries and others are trying to get designs certified for the American market.

But three tricky issues remain. The first is waste. The Department of Energy has spent $9 billion on studying the main proposed burial site, Yucca Mountain, without coming to a decision. But the absence of a long-term burial site may be less of a problem than it seems. The NRC reckons that waste can be kept safely in dry-storage casks surrounded by inert gas for 100 years while a solution is pursued.

Second, there is terrorism. The NRC's Mr Merrifield says that nuclear plants, with three-foot-thick concrete walls, are robust enough to withstand most forms of attack; but given the modern terrorist's proven ability to surprise, not everybody will be satisfied by such reassurances.

Third, there is cost. A study by MIT put the cost of nuclear electricity at 6.7 cents per kWh, against 4.2 cents per kWh for pulverised coal. Suppliers say it would be wrong to judge nuclear power on the basis of past performance, since better technology coming on to the market will cut costs significantly; but the cost overruns at Areva's new Finnish reactor do not inspire confidence.

New plants are needed to show whether they can be more cost-effective than the previous lot. And it looks as though America may build them.
Dirty king coal

May 31st 2007
From The Economist print edition

Scrubbing carbon from coal-fired power stations is possible but pricey

THERE are two remarkable things about Sleipner T, a gas rig in the middle of the North Sea owned by Norway's state-owned oil company, Statoil. One is the working conditions. Technicians get around NKr600,000 ($100,000) a year, private rooms with televisions and ensuite bathrooms, and work two weeks out of every six. That is what you get when social democracy meets oil wealth.

The other unusual thing about Sleipner T is that the CO2 which has to be extracted before the gas can be sold does not contribute to global warming. Instead of being pumped into the atmosphere it is reinjected into the ground, 1,000 metres below the seabed. That is what you get when an innovative company meets a carbon tax.

 

Statoil started capturing and storing its carbon dioxide in 1997, five years after Norway introduced a carbon tax. Nobody paid much attention then, but these days Statoil gets a regular stream of visitors because carbon capture and storage (CCS), also known as carbon sequestration, is widely seen as a possible quick fix for global warming.

It is the abundance, cheapness and dirtiness of coal that makes CCS so appealing. Coal produces 50% of America's electricity, 70% of India's and 80% of China's. It is widely distributed around the globe, which enhances its attractions at a time of concern about energy security. Burning coal is the cheapest way of generating electricity. And coal produces around 40% of the CO2 emissions from energy use.

High gas prices have meant that coal has been enjoying a revival in recent years. In America some 150 new coal-fired power stations are on the drawing board. In China, two 500MW coal-fired power plants are starting up every week, and each year the country's coal-fired power-generating capacity increases by the equivalent of the entire British grid. So anything that offers the prospect of cleaning it up is attracting a great deal of interest.

Guardian Sending carbon back where it came from

Standard pulverised-coal (PC) generation can be made a bit cleaner by burning the fuel at higher temperatures. "Ultrasupercritical" generation can cut CO2 emissions by a fifth. But if demand goes on increasing, that is not enough. Hence the interest in CCS.

CCS is being done in three places—at Sleipner; at In Salah in Algeria, where the CO2 removed from gas produced by a joint venture between BP, Statoil and Sonatrach, Algeria's state-owned energy company, is stored in the desert; and at the Weyburn oil field in Saskatchewan, Canada, where the CO2 produced by a coal gasification plant in North Dakota is piped across the border and used to increase the pressure in a partly depleted oil field. This process, known as enhanced oil recovery (EOR), is in use in 70 oil fields around the world, but at Weyburn, unusually, some of the CO2 remains underground.

Most of the operations involved in CCS are familiar. First, the CO2 must be separated from other gases. At Sleipner, for instance, the CO2 content of the gas that emerges from the oil field is 9%. That has to be reduced to 2%, which is done by passing the gas through amines (nitrogen-based chemicals). Second, the CO2 is moved along in pipelines. That is commonly done in EOR, as is the third stage—injecting it into the ground.

The fourth stage is the least familiar. When CO2 is being used for EOR, it returns to the surface (except at Weyburn). For sequestration, however, the CO2 must be stored underground, probably in depleted oil and gas fields or in porous briny rock. Statoil has been doing this for a decade at Sleipner, and there is no sign of the stuff bubbling up again. Scientists say that within decades or centuries it will dissolve, and within centuries or millennia it will react with elements in the rock and form new minerals. But this part of the process needs more study.

The challenge is to put all those technologies together and deploy them at a reasonable cost, and on a scale that can make some impact on emissions. That will take some doing. If 60% of the 1.5 billion tonnes of CO2 that America produces every year from coal-fired power stations were liquefied for storage, it would take up the same amount of space as all the oil the country consumes.

Coal-fired power stations are the likeliest candidates for CCS because they are dirty and numerous. But there is a difficulty with PC plants: they spew out a huge volume of flue gas, of which CO2 is only a small part. Separating it from other gases is expensive. The main alternative is to turn coal into gas before using it to generate electricity. The resulting CO2 and hydrogen are then separated, the hydrogen used to generate electricity and the CO2 stored. A few such integrated gasification combined-cycle (IGCC) plants have been built.


Every which way

Now that power utilities are beginning to accept that they will have to do something about carbon, the big question is what. GE has bought Chevron's IGCC technology. The cost of generating electricity from it, according to GE's Steve Bolze, is 20-25% more than a PC plant, but Mr Bolze believes that, once the cost of separating carbon is taken into account as well, IGCC may be cheaper.

Philippe Joubert, president of power systems at Alstom, which in March announced a joint venture with American Electric Power, America's biggest coal-fired generator, rejects the idea that IGCC is cheaper, even with CCS. "This is clearly not true. We should know. We are in IGCC as well as PC. It's clearly 10% more expensive. All serious academics realise that it is more expensive." A study by MIT published in March tends to side with Mr Bolze. Generating electricity from an IGCC plant with carbon capture, it maintains, is 35% more expensive than PC without CCS; but PC with CCS is 60% more expensive than PC without.

Plans for IGCC plants are proliferating. In America, at least, that says more about subsidies than about faith in the technology's future. George Bush announced a $2 billion clean-coal initiative in 2002, and the 2005 Energy Policy Act, notorious for its pork content, included $1.6 billion-worth of subsidies for coal gasification.

According to the International Energy Agency, around 15 power plants with CCS are being planned and another seven CCS projects are on the drawing board. Most make economic sense either because of direct subsidy or because of their particular economic circumstances. Statoil and Shell are planning to sequester CO2 from a Statoil power plant on the Norwegian mainland under Shell's Draugen platform. The investment is justified by Norway's carbon tax, currently about €50 per tonne. BP is planning a petroleum-coke-fuelled power plant in California, where electricity is particularly expensive and the petroleum coke for the power plant comes as a by-product of oil refining; the project is a joint venture with Edison International, an electricity company.

One big company that is making a sizeable punt on CCS is Vattenfall, which is building a 30MW plant in Germany. "I'm totally convinced", says Lars Josefsson, Vattenfall's chief executive, "that the issue of carbon sequestration will change the way we do business in the long term. I believe the companies that realise that soonest will be the winners."

If CCS is to take off, the rules on CO2 storage need sorting out. The 1996 London protocol on dumping waste at sea was amended earlier this year to allow CCS at sea. But rules on land need attending to, for promoters of CCS worry that it will become as contentious as nuclear waste.

And, as always, there is the problem of cost. At present, academics reckon that it would take a carbon price of around $30 to make sequestration economic—below the peak that the ETS hit briefly in 2006, and way above the $10 safety valve in the only carbon bill in Washington, DC, to mention a figure. But the cost may come down, because that is generally what happens as technologies are commercialised.

Despite the tricky economics, the sheer abundance of coal is an argument for pursuing CCS. And if it can be made to work, it has a certain poetic circularity: the carbon extracted from the earth as fossil fuel shall return unto the earth whence it came.


The drive for low emissions

May 31st 2007
From The Economist print edition

Car and fuel companies are investing in clean transport

KEN LIVINGSTONE, the mayor of London, last year caused a mild panic among drivers who cruise the city's narrow streets in "Chelsea tractors" (SUVs to the rest of the world). He announced that he was planning to charge cars emitting more than 225g of CO2 per kilometre £25 a day to go into the centre of London rather than the standard £8. "Red Ken" has always enjoyed stirring it among the rich, so he was probably quite happy at the stink he caused.

Worldwide car ownership is growing around 5% a year, so if emissions from cars are to be cut, engines will have to become dramatically more efficient, or there will have to be a technological breakthrough to replace petrol with a clean fuel. Now that governments seem to be getting serious about emissions, car and fuel companies are getting serious about finding less polluting alternatives.

 

Fuel-efficiency regulations of varying kinds already exist in all the countries that matter, but in America, where they were fairly tough during the oil crises of the 1970s and 1980s, they have lost their bite. Improvements in engine efficiency have been used not to reduce fuel consumption but to weigh cars down with gizmos. And car companies have carried the burden of those regulations. Fuel companies, so far, have got off scot-free.

That seems to be changing. Mr Livingstone's initiative is only one of many new measures that have been proposed around the world to cut vehicle emissions. California is trying to impose greenhouse-gas emissions standards on cars, though the motor manufacturers have taken the state to court on the ground that this is federal-government business. In his most recent state-of-the-union address, George Bush's big concession to the greens was to propose a 4% a year tightening in fuel-efficiency rules.

The EU has had a long-standing voluntary deal with the carmakers under which they would aim to reduce the average CO2 emissions of their fleets to 120g/km by 2012. But thanks to consumers' growing enthusiasm for high-power, high-emissions cars, that seemed unlikely to happen, so this year the European Commission decided to impose a mandatory standard. There was a big row, but the commission got most of what it wanted.


And now governments are taking aim at fuel companies too. In January California announced that by 2020 it will require a 10% reduction in the carbon emissions that a fuel emits over its life cycle. That has implications for "unconventional oil"—petrol made from oil shale and tar sands. Although CO2 emissions from the resulting fuel are the same as those from conventional sources, producing it is a filthy business, so such rules will discourage its use. Europe is planning to follow California. That is not necessarily a coincidence. There is a lot of traffic between Brussels and Sacramento on green issues.

Tighter regulation will not hit all companies equally (see chart 9). German car firms are particularly vulnerable, which was why they made the most fuss about the commission turning the voluntary target into a mandatory one. The French and the Italians were smugly silent.


A corny idea

"This industry is 98% dependent on petroleum. GM has concluded that that's not sustainable," says Larry Burns, GM's vice-president of R&D and strategic planning. "It's all about displacing petroleum."

The Prius's success—390,000 Americans own one—is a testament to Toyota's vision and marketing. But it is not clear how much potential there is in the hybrid market. Bill Ford announced in 2005 that his company would be building 250,000 hybrids by 2010, but it no longer seems to be aiming for that. Anyway, hybrids are not a solution to global warming. Their somewhat greater fuel efficiency will soon be offset by the increase in global car ownership. More radical technological changes are needed.

Ethanol is one possibility, because although burning it emits CO2, growing the crops needed to produce it absorbs the stuff, at least in theory. The farming lobby has been pushing it as a new source of revenue. The car industry is keen on it: if the fuel changes, then the cars don't have to. GM has been running a "live green, go yellow" campaign to promote it.

Ethanol currently accounts for only 3.5% of American fuel consumption, but thanks to heavy subsidies its use is growing by 25% a year, says Matt Drinkwater of New Energy Finance. When oil prices were at their peak, the payback period on an ethanol plant was 11 months. Not surprisingly, they have sprung up all over the Midwest. Soaring demand for maize for ethanol caused the sharp rise in the corn price which led to "tortilla riots" in Mexico.

There are three problems with corn ethanol. First, the market is limited. At present, any car can take E10 fuel (10% ethanol) but only 6m out of America's 237m cars and trucks are "flex-fuel" vehicles that can take E85 (85% ethanol). Converting a car costs only around $200, but invalidates the guarantee. Detroit has promised that half of its output will be "flex-fuel" by 2012.

Second, corn ethanol is expensive. At the pump it is competitive with gasoline; but according to the International Institute for Sustainable Development, America's subsidy costs taxpayers somewhere between $5.5 billion and $7.3 billion a year. And high tariffs keep out imports of cheap Brazilian ethanol made from sugar cane.

Third, corn ethanol is not very green. Some people think that corn ethanol is responsible for more emissions than it saves, because so much energy is used in growing the corn. Dan Kammen and Alex Farrell of the University of California at Berkeley reviewed six studies on the issue and concluded that, gallon for gallon, ethanol is probably 10-15% better than petrol for emissions of greenhouse gases. That is a help, but no panacea.

A better bet may be cellulosic ethanol—ethanol that can be made out of straw, switchgrass, wood chips—pretty much anything with cellulose in it. Mr Bush, keen on a technological quick fix for global warming, has offered $385m in government subsidies to bring cellulosic ethanol to market.

A lot of people are trying. Vinod Khosla's company, Range Fuels, is planning to build a commercial-scale ethanol plant in Georgia. Using woodchips as a feedstock, it employs heat and chemicals to break down the tough bonds in cellulose molecules. Up to $76m of subsidy will help it on its way. Many companies are working on suitable enzymes to break down those bonds. One such is Iogen, in which Goldman Sachs and Shell have taken stakes. It will be getting up to $80m from the government.

One further problem with ethanol is that it is less energy-intensive than petrol, so you get fewer miles per gallon. That is one reason why BP is putting its money into a different fuel, biobutanol, which is more energy-intensive than ethanol. BP is developing it in a joint venture with DuPont, for which biobutanol offers a possible way into the fuel business.

And then there is the electric car—not the hybrid car that uses electricity for pottering about in the city and switches to its combustion engine at speed, but the fully electric sort that uses either a hydrogen fuel cell to produce electricity or a battery to store it.

Hydrogen is an attractive way of powering a vehicle because it can be made from all the sources that electricity can. But hydrogen fuel cells have been just around the corner for a long time. GM has been working on them since the 1960s, and reckons that so far it has spent $1 billion. The technology's appeal is obvious, for it could revolutionise not only the car: if the hydrogen fuel cell can produce electricity to power a vehicle, why not a house as well?

There was a bubble of excitement about fuel cells in the late 1990s, and shares in companies such as Ballard Power Systems rocketed. But hopes that a fuel-cell car would be on the market early this decade were disappointed. The fuel cell, says Shell's Duncan Macleod, was "overpriced and over-promised at the front end".

Still, fuel-cell vehicles are getting onto the roads. London ran three buses for a three-year trial and is now planning to buy ten. There are around 60-80 hydrogen buses and 200 cars on the road worldwide, and a few filling stations. Shell, which is taking hydrogen seriously, is about to open its first filling station in California. It has one already, in Washington, DC, to service ten cars, and another in Iceland, for three buses. It is an expensive business. London's three-year, three-bus trial cost £4.5m. Hydrogen cars cost around $1m each to build, according to Mr Macleod. At the pump the hydrogen costs $5 a kilo—about the same, in terms of mileage, as current petrol prices. How much does it cost Shell to make? "A lot more than $5," says Mr Macleod, laughing.

GM is also working on battery technology. At this year's Detroit motor show it unveiled the Chevrolet Volt, which has both a battery and a combustion engine. The technology got generally good reviews, but GM has not said when it will start producing the car commercially.

Meanwhile, rushing up on the inside lane are those disruptive people from Silicon Valley. Last year Elon Musk, a South-African-born entrepreneur who started PayPal, an online payments system, unveiled the Tesla, an electric sports car. It plugs into the wall and stores the energy in a lithium-ion battery—the sort used in laptop computers, only with 6,831 cells. And it's a pretty, and nippy, little car. "A Porsche can accelerate from 0-60 in 4.7 seconds," says Mr Musk with understandable pride. "The Tesla can do it in four seconds."

It has a few disadvantages. The first is cost. Mr Musk has pre-sold the first 350—the first 120 of those for $100,000 apiece. "The average net worth of the first 120 customers is over $1 billion," he says. However, he plans to start work on a budget version next year. The second is range. The Tesla's maximum is 250 miles. If there are other downsides, they may become clear in August or September this year, when the first production models should slip silently off the production lines and onto America's roads.

Clean-energy entrepreneurs may find the transport business harder to crack than power generation, because the existing infrastructure of pipelines and service stations is dedicated to petrol. Yet Brazil, where sugar ethanol now accounts for 40% of fuel used by cars, shows that it can be done. Now that governments are beginning to lean on big oil as well as on the car companies, the drive towards cleaner transport is likely to pick up speed.


The final cut

May 31st 2007
From The Economist print edition

Business can do it, with governments' help

THESE days business is full of enthusiasm for combating climate change. That is a good thing, but there are risks.

One lies in the very voguishness of the issue. Climate change is fashionable, and although fashion has the virtue of being able to transform the dull and worthy into the hip and happening, it is, by definition, transitory. Hollywood stars will probably get bored of their Priuses, and executives may become weary of mouthing green platitudes and move on to whatever branch of corporate social responsibility next catches the popular imagination.

 

A second risk lies in the volatility of the oil price. The higher it goes, the better the prospects for constraining carbon. Shares in clean-energy companies rose with the oil price in 2004-05 and dipped last year; but the oil price remains historically high, thus supporting the current optimism about green business. In the long term the oil price is expected to be above $50, which would be good for clean energy. But should it crash, those who had invested heavily in renewables and other alternatives to fossil fuels would look silly.

The third risk is political. Companies investing in energy efficiency and alternatives are banking on incentives to provide them with decent returns on their investments. But unless those incentives rise, the clean-energy boom is likely to turn to bust.

Consumers are not likely to provide companies with the incentive to go green. They may like the warm glow they get from buying ethically sound products, but there is little sign that they are prepared to spend more money on them. Not even 1% of passengers have taken up BA's very reasonably priced offer to offset the carbon emissions of their flights (£5 for London-Madrid, £13.50 for London-Johannesburg). That may be because people are selfish—or it may be because they are rational enough to know that their individual economic choices are not going to make a blind bit of difference to the future of the planet. Nobody is going to save a polar bear by turning off the lights.

Eyevine It's getting unbearable

As voters, however, people can make a difference. Climate change is a collective problem, which can be dealt with only collectively. Voters can encourage that by electing governments committed to changing the rules to encourage companies to behave differently.

There are three ways for governments to persuade companies to constrain carbon: subsidies, standards and a carbon price. Subsidies are popular with recipient companies; with greens, who reckon that any money used to combat climate change is well spent; and with governments, which like handing out taxpayers' money. Taxpayers tend not to notice. Some economists also advocate subsidies to particular technologies because they need a kick-start to get them to market. That may be true in the case of big, risky processes such as CCS. But subsidies tend to be inefficient because they require governments to pick technologies. And, once in place, they are hard to abolish.

A second way for governments to discourage emissions is by setting standards for products and processes (such as imposing energy-efficiency requirements for buildings, or banning incandescent lightbulbs). Such standards are usually a bad idea, for they require governments to tell the private sector how to allocate resources, and the private sector tends to be better at that than governments are. But given the market's inability to eliminate energy waste from buildings, and society's interest in doing so, they are probably worth having in this case.

Still, a carbon price is likely to be the best way to cut emissions. That can be established through either a tax or a cap-and-trade system of the sort Europe has.

A tax would be the better option. Unlike a cap-and-trade system, which stipulates the amount of CO2 that may be emitted and allows the price to vary, a tax sets a price and lets it determine the quantity emitted. The volatility of the carbon price in Europe, which has variously risen above €30 and dropped to close to zero, is blamed in part for the lack of investment in clean energy, so there is a lot to be said for setting a price. But the prospects for a tax are not good. Business—particularly in America—is allergic to the very word; and the allowances which companies tend to be handed in the early stages of a cap-and-trade system have an obvious appeal to companies concerned about rising costs.

Whichever way a carbon price is established, the big question remains: can it be set at a level high enough to make a difference to climate change without derailing the world economy?

Probably. According to Richard Newell of Duke University, economists' estimates of the carbon price needed to stabilise CO2 concentrations at 550 parts per million (widely reckoned to be a safeish level) range from $5 to $30 per tonne by 2025 and from $20 to $80 per tonne by 2050. The Intergovernmental Panel on Climate Change came out with fairly similar figures in its fourth report earlier this year—$20-50 per tonne by 2020-30. Mr Newell reckons that, in America, $20 per tonne would raise petrol prices by an average of 18 cents (or 6%) per gallon, and electricity prices by 14%. A $50 price would raise petrol prices by an average of 45 cents (or 15%), and electricity prices by 35%.

At the bottom end of the range these costs are not huge. Even at the top end they are manageable. The IPCC's estimates of what a $20-50 carbon price would do to world GDP by 2050 range from a slight increase on what it otherwise would have been to 4% less. The average is 1.3% less, which would mean that average annual growth would be around 0.1% lower than it might otherwise have been.

Those prices assume that the entire world adopts a carbon price. That is a heroic assumption. Persuading developing countries to do so will be very hard.

It cannot be done unless all rich countries take the first step. They need to set an effective carbon price, and show the developing world that they can do so without ruining their economies. It wouldn't be a solution to climate change, but it would be a start.

Cleaning up: How business is starting to tackle climate change... companies are not driven purely by fear of regulation. Cleaner energy means new technologies, and new money to be made. Businesspeople concerned to position themselves well for a carbon-constrained future must invest in technologies that will produce cleaner energy


The environment

Cleaning up

May 31st 2007
From The Economist print edition



Getty Images

Getty Images


How business is starting to tackle climate change, and how governments need to help

THE current row over climate change sounds all too familiar. Germany, host of this year's G8 summit, is trying to get the world to agree on what to do when the Kyoto protocol on curbing greenhouse gases runs out in 2012. America, which dislikes the tough targets that the Europeans want the world to sign up to, is proposing separate negotiations between the world's big emitters. Environmentalists accuse it of trying to sidetrack the issue. The line-up is much like the one that led to America's withdrawal from the Kyoto agreement in 2001.

Yet to conclude from this that nothing has changed would be wrong. Attitudes have shifted sharply over the past six years, most importantly among businesspeople.

Until recently business tended to take a dim view of the idea that the climate was changing. The notion implied that industry had damaged the planet, and should therefore pay for the consequences. Since companies couldn't see the damage they were supposed to have done, they preferred, by and large, to argue that it wasn't happening.

No longer. These days businesspeople are falling over each other to prove their greenness. That's partly because the politics of climate change have moved so fast in America. Five bills in Congress would introduce federal controls. Most of the serious presidential candidates for 2008 favour them. California now has binding targets to cut CO2 emissions, and other states plan to follow. Many chief executives have come round to the view that federal controls would be better than a patchwork of state laws. And if federal regulations are coming, companies need to support them, in order to be involved in designing them. Hence the need to be seen to be green.


Wind of change

But companies are not driven purely by fear of regulation. Cleaner energy means new technologies, and new money to be made. Businesspeople concerned to position themselves well for a carbon-constrained future must do more than get themselves photographed with Al Gore: they need to invest in technologies that will produce cleaner energy.

There's scope for new investment. In 2003, the most recent year for which figures are available, America's power-generation business, arguably the world's biggest single polluter, spent a rather smaller proportion of its revenues on R&D than did America's pet-food business. But that's beginning to change, as our survey this week makes clear.

Global investment in renewable power-generation, biofuels and low-carbon technologies rose from $28 billion in 2004 to $71 billion in 2006, according to New Energy Finance, a research company. The stock prices of clean-energy companies have been rocketing up. Silicon Valley's venture capitalists are piling into the business, convinced that they can design revolutionary technologies, bring down prices and turf out incumbents in the energy business just as they did in the software business. Oil firms, carmakers, power generators, nervous of being outmanoeuvred, are jacking up their investments in renewables and biofuels.

As the likes of General Electric and BP put money into cleaner technologies, costs will fall. The price of a watt of solar photovoltaic capacity dropped from around $20 in the 1970s to $2.70 in 2004 (though a silicon shortage, caused by rocketing demand as a result of madly generous German subsidies, has pushed it up since). The price of wind power has fallen from $2 per kilowatt hour in the 1970s to 5-8 cents now, compared with 2-4 cents for coal-fired power. More investment will bring prices down further; and, as the gap shrinks, so the costs of switching from dirty energy to the clean sort will fall.

Yet business's new enthusiasm for clean energy is a fragile green shoot in a dark landscape. Much could happen to crush it. A sustained fall in the oil price, for instance, would undermine investment in costlier, cleaner technologies. But the bigger risk is political. Businesses are investing in alternatives to fossil fuels because they assume that carbon emissions will be constrained in the future. If governments do not act to curb emissions, those investments will eventually wither.


A convenient truth

The best way for governments to encourage investment in cleaner energy is to make the polluter pay by putting a price on CO2 emissions. According to the Intergovernmental Panel on Climate Change, the body set up under the auspices of the United Nations to establish a consensus on global warming, a price of somewhere between $20 and $50 per tonne of CO2 by 2020-30 should start to stabilise CO2 concentrations at around 550 parts per million (widely reckoned to be a safeish level) by the end of this century. A $50 price tag would raise petrol prices in America by around 15% and electricity prices by around 35%—hardly draconian when set alongside recent fluctuations. The IPCC reckons that stabilising at 550ppm would knock around 0.1% off global economic growth annually.

A carbon price can be established either through a tax or through a cap-and-trade system, such as the one Europe adopted after signing up to Kyoto. A carbon tax would be preferable, because companies would then be able to build a fixed price into their investment plans; but businesspeople and politicians are both strangely averse to the word "tax". A cap-and-trade system can be made to work, but the price has to settle at a level that affects commercial decisions. Europe's hasn't: the price has been too volatile, and, for much of its existence, too low, to shift investment patterns much.

Europe has tightened its system up, and the carbon price has risen to a level which could start to make a difference. But Europe, by itself, will not save the planet. It is America that matters, not just because it is the world's biggest polluter, but also because without its participation, the biggest polluters of the future—China and India—will not do anything.

The best news in the fight against climate change is that business is starting to invest in clean energy seriously. But these investments will flourish only if governments are prepared to put a price on carbon. The costs of doing that are not huge. The costs of not doing so might be.

Struggling to save the planet: A new American proposal on combating climate change


Global warming

Struggling to save the planet

May 31st 2007
From Economist.com

A new American proposal on combating climate change

Reuters

UNLIKE all other rich countries bar Australia, the United States never ratified the Kyoto protocol, and formally withdrew from it in 2001. The United Nations' treaty on climate change restricts emissions from rich countries while allowing those of poor countries to grow unfettered. That would put American firms at an unfair disadvantage to Chinese and Indian ones, the Bush administration says, and would prompt the most polluting industries to move to poor countries.

But America is not happy with the notion that it shirks its responsibilities to the planet, but nor does it want to sign up to tough emissions targets. So on Thursday May 31st George Bush announced a new initiative designed to reconcile those concerns. The American plan involves negotiations between the world's big emitters, including developing countries such as China and India, which were not required to cut their emissions under the Kyoto protocol. The aim of the talks would be to set targets by the end of 2008—which, given America's previous hostility to targets of any sort, looks like a concession to the Europeans ahead of next week's summit of the Group of Eight, which will address climate change among other topics.

 

Angela Merkel, Germany's chancellor, wants the G8 countries to agree that the increase in the world's average temperature due to global warming should not be allowed to exceed 2°C. To that end, she wants them to pledge to cut their 1990 levels of greenhouse-gas emissions by half by 2050. These steps, she hopes, will pave the way for negotiations on a new global pact on climate change; talks could get under way as soon as December. Mrs Merkel has told the German parliament that she is not sure a deal can be reached. She is planning to have lunch with Mr Bush on June 6th, the opening day of the summit, in the hopes of breaking the deadlock. But the chances of success are slim: the rowdy debate about climate change at the summit might even drown out the howls of anti-globalisation protestors outside the venue.

The new American initiative seems an admission that its previous strategy has failed. At a conference in Laos in 2005 it recruited Australia, China, India, Japan and South Korea to an outfit called the Asia-Pacific Partnership on Clean Development and Climate. Canada's conservative government toyed with joining the partnership and announced that it would not be able to reduce emissions by as much as it promised at Kyoto. But it recently pledged instead to reduce emissions by a more modest amount by 2020, and says it has no objections to Mrs Merkel's 50% target by 2050.

Australia's government, too, seems to be wavering in its opposition to mandatory emissions caps. Indeed, world leaders seem to be competing with one another to churn out ever more ambitious targets on global warming. Shinzo Abe, Japan's prime minister, has decided to make climate change one of the centrepieces of his tenure. He too has produced a plan for a 50% cut in global emissions by 2050. Tony Blair, Britain's outgoing prime minister, has an even more ambitious reduction in mind, of 60%. The European Union as a whole has agreed to reduce its emissions by 20% by 2020, and offered to increase the figure to 30% if non-European countries make commitments of their own. Norway, meanwhile, hopes to become the world's first "carbon neutral" country, by reducing its emissions to zero by 2050, or paying for equivalent reductions elsewhere.

All these proposals are much more ambitious than America's, and it will take a lengthy debate—and perhaps another president—to reconcile them. In the meantime, global emissions continue to grow. Indeed, the growth appears to be accelerating. A study recently published by America's National Academy of Sciences found that worldwide emissions, which had been growing by 1.1% a year in the 1990s, grew by more than 3% a year between 2000 and 2004. That is faster than the most pessimistic projections of the UN's Intergovernmental Panel on Climate Change, a body set up to make authoritative pronouncements on the science of global warming. It is also faster than economic growth, implying that the world is not just consuming more energy, but also making it ever more dirtily.

Struggling to save the planet: A new American proposal on combating climate change will not defuse the row over the issue in the run-up to the G8 summit


Global warming

Struggling to save the planet

May 31st 2007
From The Economist print edition

A new American proposal on combating climate change will not defuse the row over the issue in the run-up to the G8 summit

Reuters

AT MOST summits of the Group of Eight, a club where the leading industrialised democracies, plus Russia, mull over global issues ranging from proliferation to money-laundering, the hosts go to great lengths to insulate the delegates from rowdy protests. Next week's pow-wow, which takes place in the serene 18th-century resort of Heiligendamm on Germany's Baltic coast, is no exception. The government tried to exclude protesters from a zone that extended as far as 10km (six miles) from the elegant classical palace where the grandees will assemble; a court later reduced the cordon to 200 metres from the perimeter fence. But this year, the biggest commotion may occur inside the venue, as leaders debate a common response to climate change.

The preparations for the summit, at any rate, have been unusually contentious. Angela Merkel, Germany's chancellor, wants the G8 countries to agree that the increase in the world's average temperature due to global warming should not be allowed to exceed 2°C. To that end, she wants them to pledge to cut their 1990 levels of greenhouse-gas emissions by half by 2050. These steps, she hopes, will pave the way for negotiations on a new global pact on climate change; talks could get under way as soon as December. Mrs Merkel has told the German parliament that she is not sure a deal can be reached. She is planning to have lunch with George Bush on June 6th, the opening day of the summit, in the hopes of breaking the deadlock.

 

America is not happy with the notion that it shirks its responsibilities to the planet, but nor does it want to sign up to tough emissions targets. In particular, it objects to rules like those of the Kyoto protocol, the United Nations' treaty on climate change, which restricts emissions from rich countries while allowing those of poor countries to grow unfettered. That would put American firms at an unfair disadvantage to Chinese and Indian ones, the Bush administration says, and would prompt the most polluting industries to move to poor countries. Unlike all other rich countries bar Australia, the United States never ratified the Kyoto protocol, and formally withdrew from it in 2001.

As The Economist went to press, Mr Bush was expected to announce a new initiative designed to reconcile those concerns. The American plan involves negotiations between the world's big emitters, including developing countries such as China and India which were not required to cut their emissions under the Kyoto protocol. The aim of the talks would be to set targets by 2008—which, given America's previous hostility to targets of any sort, looks like a concession to the Europeans.

Reuters Not everybody's favourite club

The new American initiative seems an admission that its previous strategy has failed. At a conference in Laos in 2005 it recruited Australia, China, India, Japan and South Korea to an outfit with that approach, called the Asia-Pacific Partnership on Clean Development and Climate. Canada's conservative government toyed with joining the partnership and announced that it would not be able to reduce emissions by as much as it promised at Kyoto. But it recently pledged instead to reduce emissions by a more modest amount by 2020, and says it has no objections to Mrs Merkel's 50% target by 2050.

Australia's government, too, seems to be wavering in its opposition to mandatory emissions caps. The opposition, which is ahead in the opinion polls, has promised to sign the Kyoto protocol. In response, the government created a commission to come up with a new approach on climate change; it handed over its conclusions this week. The prime minister is now expected to unveil a more exacting policy based on these recommendations before calling an election later this year.

Indeed, world leaders seem to be competing with one another to churn out ever more ambitious targets on global warming. Shinzo Abe, Japan's prime minister, has decided to make climate change one of the centrepieces of his tenure. He too has produced a plan for a 50% cut in global emissions by 2050. Tony Blair, Britain's outgoing prime minister, has an even more ambitious reduction in mind, of 60%. The European Union as a whole has agreed to reduce its emissions by 20% by 2020, and offered to increase the figure to 30% if non-European countries make commitments of their own. Norway, meanwhile, hopes to become the world's first "carbon neutral" country, by reducing its emissions to zero by 2050, or paying for equivalent reductions elsewhere.

All this leaves America with few allies at the G8. Nicolas Sarkozy, France's new president, has urged the Americans not to obstruct attempts to tackle climate change. Even Russia is likely to support Mrs Merkel's stance, since its emissions have fallen dramatically since 1990, thanks to the industrial collapse that accompanied the break-up of the Soviet Union. It also stands to benefit from the trade in credits for emissions reductions allowed under Kyoto.

Nonetheless, America is likely to stick to its guns. After all, Mr Bush resisted similar pressure from his friend Mr Blair ahead of the G8 summit in 2005, which also addressed global warming but resulted in only an anodyne statement. Most European governments assume that little progress will be made until a new American administration takes office in 2009.

In the meantime, global emissions continue to grow. Indeed, the growth appears to be accelerating. A study recently published by America's National Academy of Sciences found that worldwide emissions, which had been growing by 1.1% a year in the 1990s, grew by more than 3% a year between 2000 and 2004. That is faster than the most pessimistic projections of the UN's Intergovernmental Panel on Climate Change, a body set up to make authoritative pronouncements on the science of global warming. It is also faster than economic growth, implying that the world is not just consuming more energy, but also making it ever more dirtily.

Even the G8 members that are enthusiastically embracing ambitious targets are struggling to cut their emissions. Only Britain and Russia are now on target to meet their obligations under Kyoto (see chart). Meanwhile, emissions from India and China have almost doubled since 1990. No wonder the row over the G8's summit communiqué is getting hotter and hotter.

Investing in sustainability: An interview with Al Gore and David Blood -- The former vice president and his partner in an investment-management firm argue that sustainability investing is essential to creating long-term shareholder value.


Thanks to Sonia for this one: from Mc Kinsey quarterly
 
Investing in sustainability: An interview with Al Gore and David Blood
The former vice president and his partner in an investment-management firm argue that sustainability investing is essential to creating long-term shareholder value.

Lenny T. Mendonca and Jeremy Oppenheim

Web exclusive, May 2007

As McKinsey research indicates, executives around the world increasingly recognize that the creation of long-term shareholder value depends on a corporation's ability to understand and respond to increasingly intense demands from society.1 No surprise, then, that the topic of socially responsible investing has been gaining ground as investors seek to incorporate concepts like sustainability and responsible corporate behavior into their assessments of a company's long-term value.

Yet socially responsible investing has always been an awkward science. Early approaches simplistically screened out "sin sectors" such as tobacco. Subsequent evolutions tilted toward rewarding good performers, largely in the extraction industries, on the basis of often fuzzy criteria promulgated by the corporate social-responsibility movement. These early approaches tended to force an unacceptable trade-off between social criteria and investment returns.

Three years ago, former US Vice President Al Gore and David Blood, previously the head of Goldman Sachs Asset Management, set out to put sustainability investing firmly in the mainstream of equity analysis. Their firm, Generation Investment Management, engages in primary research that integrates sustainability with fundamental equity analysis. Based in London and Washington, DC, Generation has 23 employees, 12 of them investment professionals, and a single portfolio invested, at any given time, in 30 to 50 publicly listed global companies.

The two partners recently sat down with McKinsey's Lenny Mendonca and Jeremy Oppenheim to discuss reconciling sustainability and socially responsible investing with the creation of long-term shareholder value.

The Quarterly: What do you mean by the term "sustainability," and how does it influence your investment philosophy?

David Blood: Sustainability investing is the explicit recognition that social, economic, environmental, and ethical factors directly affect business strategy—for example, how companies attract and retain employees, how they manage the risks and create opportunities from climate change, a company's culture, corporate-governance standards, stakeholder-engagement strategies, philanthropy, reputation, and brand management. These factors are particularly important today given the widening of societal expectations of corporate responsibility.

Al Gore: When, several years ago, David and I were separately looking for ways to integrate sustainability into investing, mutual friends told each of us of the other's search. We discovered immediately that we had a common goal, and that led to a series of meetings and a friendship and, ultimately, to a decision to form a partnership. We researched the history of sustainable investing under its various names and decided to start a new partnership in order to design it, from the ground up, according to the architecture that we believed was essential to address the challenges in the investment-management industry.

 DAVID BLOODEducation
Graduated in 1981 with BA from Hamilton College, Clinton, New York

Earned MBA in 1985 from Harvard Business School

Career highlights
Generation Investment Management (2004–present)

Managing partner
Goldman Sachs (1985–2003)

Co-CEO and CEO of Goldman Sachs Asset Management (1999–2003)
CEO of Goldman Sachs Asset Management, Europe (1997–99)
Served in various positions, including head of international operations, technology, and finance; treasurer of Goldman Sachs; head of global private capital markets; investment banker (1985–97)
Fast facts
Serves on board of trustees of Acumen (nonprofit global venture fund) and of SHINE (UK organization that funds educational-support projects for disadvantaged children and young people)
 

 AL GOREEducation
Graduated in 1969 with BA in government from Harvard College

Attended divinity school (1971–72) and law school (1974–76) at Vanderbilt University, Nashville, Tennessee

Career highlights
Generation Investment Management (2004–present)

Cofounder and chairman
Current TV (2005–present)

Cofounder and chairman
US government (1977–2001)

Vice president (1993–2001)
Senator (1985–93)
Member, House of Representatives (1977–84)
Served in US Army in Vietnam War (1969–71) and worked as investigative reporter with Tennessean in Nashville
Fast facts
Author of several books, including An Inconvenient Truth (about the threat of and solutions to global warming); featured in the Academy–Award-winning documentary film of the same name

Serves on board of directors of Apple and as senior adviser to Google

Visiting professor at Middle Tennessee State University
 

The Quarterly: What did the history of sustainability investing teach you?

David Blood: Sustainability investing has a long history, starting back with the first wave of negative-screening strategies, where investors excluded entire sectors based on a set of ethical criteria. This strategy remained niche; returns were lackluster due to the fact that your investment-opportunity set was limited. The next wave of sustainability investing was called the positive-screening, or best-in-class, approach. That's the philosophy of the Dow Jones Sustainability Indexes and the KLD Broad Market Social Index—these indexes replicate the underlying benchmarks but select only the best performers on environmental, social, and governance parameters.

However, the problem with this approach is that it's difficult to get a real sense of what's happening in those businesses, because it's basically a one-size-fits-all approach, often using questionnaires for decision making. In addition, often one team does the sustainability research and then hands it over to the investment team to do the financial research. That approach, we believe, has too much friction in it because it misses the explicit acknowledgment that sustainability issues are integral to business strategy. So in setting up Generation, we saw the need to fully understand sustainability issues alongside the fundamental financial analysis of a company.

Al Gore: We don't think it's acceptable to force a choice between investing according to our values or according to the ways most likely to get us the best return on investment. Our objective in innovating with this new model was to focus on the best return for our clients, full stop. But we wanted to do so in a way that fully integrates sustainability into the model.

The Quarterly: That suggests greater complexity.

David Blood: Yes, sustainability research is complicated because it requires you to think long term and to think about the first- and second-order effects of an issue. We like to describe our approach to sustainability research as taking a systems view. What that means is, if you're thinking about climate change you first need to understand the physical, regulatory, and behavioral impacts on business. But you also need to understand what a changing climate means for disease migration and public health, what it means for poor populations in developing countries, what it means for water scarcity or demographic and urbanization trends. The most important and challenging research is trying to determine how all these factors interact. Without that understanding, you can miss a significant part of the business implications.

The Quarterly: What principles drive your approach?

David Blood: The first principle, categorically, is that it is best practice to take a long-term approach to investing. We think that the focus on "short termism" in the marketplace is detrimental to economies, detrimental to value creation, detrimental to capital markets, and a bad investment strategy. It's common corporate-finance knowledge that something on the order of 60 to 80 percent of the value of a business lies in its long-term cash flows. And if you're investing with a short-term horizon you're giving up the value creation of a business.

The second principle is that the context of business is clearly changing. We are now confronting the limits of our ecological system, and at the same time societal expectations of business are widening. On top of that, multinational businesses are oftentimes better positioned than governments to deal with some of the most complicated global challenges, such as climate change, HIV/AIDS, water scarcity, and poverty. Technology and communications have changed, and we've reached a point where civil society is now demanding a response from business.

The Quarterly: What's your perspective on how that changes corporate strategy?

David Blood: In effect what's happening, unbeknownst to many corporate leaders, is that the goalposts for their businesses' license to operate have moved. There are higher expectations and more serious consequences, and the implications go way beyond protecting your reputation or managing costs. Rather, we see this changing context for business as an opportunity for companies to establish competitive positioning, grow revenues, and drive profitability. In the end, that's the holy grail of sustainability investing—to seize the opportunities, not just avoid the risks.

The Quarterly: What has been the reception from pension funds and longer-term investors to this notion?

David Blood: Very good. They recognize that they have long-term liabilities, and it is their fiduciary duty to match those liabilities with assets. The recent adoption of the UN's Principles for Responsible Investment by asset owners and managers representing over $8 trillion is a good example of the institutional-investment community beginning to commit to a long-term time horizon and the explicit recognition that environmental, social, and governance factors drive value creation.

From Generation's perspective, we're pleased with this awakening. If you go back to when we founded this firm, we thought that sustainability investing would eventually be mainstream, but we never would have guessed that the reception and focus on sustainability would be as loud and as urgent as it is today versus three years ago.

The Quarterly: Why do you think that is?

David Blood: It's because people realize that there are reputation issues related to sustainability, but they also recognize that, in the end, this is about driving profitability and competitive position. Asset owners are beginning to get this and they are looking to invest in the companies that understand it.

Al Gore: The market is long on short, and short on long. There's a widespread recognition within the industry that what has emerged over time doesn't really make any sense. They know that it needs to change and they are ready for change.

We are in a period of history, right now, when the contextual changes are larger than the ones we've been used to in the past. Changes that we've associated with very long cycles are now foreshortened and are occurring much more rapidly. Positioning a company to ride out these changes and profit from them often means making stretch investments to change the infrastructure, change the energy source, change the physical plant, and adapt to the new realities. And if there is the tyranny of a three-month cycle, then companies won't make those investments. So focusing only on the quarter can blind you to the most important factors of all.

The Quarterly: How many executives really understand the complexity and interconnection of the trends you describe?

Al Gore: It's a rapidly growing number. I recently spoke at a conference, in Copenhagen, focused on carbon trading, with thousands of companies represented. As part of an internal survey, attendees were asked how many of them had internalized their "carbon budget" and begun to drive down their internal emissions.

A year ago it was 15 percent. This year it was 65 percent. That would correspond with what we've found in multiple other areas—a kind of tipping point that we are at right now. For example, I had a chance to visit Wal-Mart in Bentonville, Arkansas, around the time they launched their commitment to "green" their supply chain. And David and I spent time with [GE CEO] Jeff Immelt, and we could give you lots of other examples of CEOs who, a few years ago, might not have talked this way and yet are now not only knowledgeable but highly sophisticated. They may have started with concerns about brand protection and reputation and the like. But once they got into it, it was as if a whole new world of opportunity and new markets opened up.

The Quarterly: What do those executives and companies that are doing this well see differently?

David Blood: The first is that they understand their long-term strategy. Secondly, they understand the drivers of their business—both financial and nonfinancial. The leading CEOs are the ones who explicitly recognize that sustainability factors drive business strategy.

In our minds, the best businesses have always understood the importance of culture and employees and ethics. And they get it in their soul. But what's now becoming true—particularly for the industrials, the retailers, the pharmaceuticals, the utilities, and a broader array of industries—is that managers are realizing that there are broader factors affecting how they operate. They can recognize that over the next 25 years their strategy will depend on leveraging new opportunities and must operate within the changing context of business.

The Quarterly: Can you give us an example?

Al Gore: In Denmark, Novo Nordisk clearly gets this. They take a holistic view and a long-term view. They look at the whole system. Take their presence in China. They went into China at a very early stage with genuine concern for what they could do to help forestall the diabetes epidemic there, which is growing at a faster rate than it is in the rest of the world due to the transition to a Western diet and lifestyle.

Novo Nordisk has 60 percent of the Chinese market for insulin and they're focusing their business plan on trying to cure and prevent diabetes. If they succeed then presumably sales of insulin will not increase at the current rate, but they think the problem is large enough that it is more important to address the root cause of the problem. This commitment comes out of the phenomena that David was just describing to you.

The Quarterly: Is this approach possible in all sectors? Clearly, the pharmaceutical industry is an interesting case. Can you get there in tobacco? Fast food? Or are these just sectors that are fundamentally, somehow, no-go territory?

David Blood: There are material sustainability challenges in all industries. In the fast-food or food-manufacturing industry, there's a very strong move toward healthy living and eating, organic food, and the implications for sustainable agriculture. And how do food companies deal with the upstream challenges of these trends, challenges such as water use? While we don't invest in it, the tobacco sector faces a whole host of issues which are very much sustainability driven—not just the health impact of the product. But, again, sustainable agriculture is a big story, as is litigation risk. In another sector, like financial services, the key sustainability issue is how a company manages its human capital. In the energy sector, climate change is one of the most significant issues. In the health care sector, we look at ethical marketing practices between companies and doctors. Even in industries like luxury goods there are issues around excessive materialism, authenticity, and consumption.

What I'm describing here is what we call a materiality-based approach to investing. Rather than looking at 50 different tick-box sustainability criteria, we think you need to tackle the three or four long-term issues that will really affect corporate profitability.

The Quarterly: What examples come to mind of companies that have thought beyond managing sustainability risks and moved on to creating revenue opportunities?

David Blood: A company like Johnson Controls, for example, is interesting because of its focus on demand-side energy efficiency. About 50 percent of its business is batteries for hybrid cars and products to run buildings efficiently, the other 50 percent is automotive interiors and controls. We think it's the former that's going to be growing and driving that company. They understand that their products will help reduce their clients' environmental footprint. This strategy is completely revenue driven. GE's Ecomagination is another example. If you think about how GE's stock price is going to trade, it's going to trade primarily on growth. Jeffrey Immelt knows this. He's betting his reputation and his company on the notion that the businesses related to the environment will enable GE to grow faster than GDP. In Mexico we cover two Mexican home builders that are linked to demographic trends and to the very strong demand and need for affordable housing in Mexico.

These are just some examples of how companies can see sustainability trends as growth opportunities or as new niches for existing products and services.

The Quarterly: One of the important interfaces between the investing world and management is the board. What role do boards of directors play in trying to ensure that this kind of mind-set is embedded in corporate activity and communicated to investors?

Al Gore: I think that the board of directors has a growing responsibility to address these very topics. As stewards of shareholder interests, boards should be focused on the long-term sustainability of the firm rather than on the market noise. If I were on the board of a company doing business primarily in the European Union, I would ask questions about how long it will be before my fiduciary responsibility required attention to the aggressive management of carbon. Because even though natural resources are not depreciated and even though pollution is treated as an externality and a reputation risk, where regulations and laws are involved, pollution now has an economic cost. And that cost is increasing.

The Quarterly: Do you assess how the board compensates the chief executive?

David Blood: Remuneration is a very specific area that we look at. In line with all the things we've already talked about, perverse short-term incentives in the financial system obviously are manifested at a corporate level by remuneration structures.

The Quarterly: What must CEOs do more of?

David Blood: Some are taking on a host of issues and seeing the interlinkages, but there's an enormous segment that is still single-issue focused. I think managing and understanding climate risk is the first wedge into that. You would hope that people then start to look at the second-order effects of climate change. I think one of the biggest things that CEOs can do is explain their longer-term story to the capital markets more forcefully. Increasingly, the research community is interested in the environmental, social, and governance factors that drive company strategy and is integrating these factors into mainstream research.

The Quarterly: Can we explore climate change a bit more deeply? How do you think about that from an investing standpoint and what do you think that business should be doing that would help not just with climate change but with investment returns?

Al Gore: There is a big story and opportunity around the supply side of cleaner energy. We would look for companies to recognize that carbon constraints will be more aggressive in the future. So we would expect to see opportunity in businesses that are involved with lower-carbon energy, including renewable-energy provision, such as wind, solar, and cellulosic ethanol2 production. Or in businesses that are involved in cleaning up traditional fossil energy, which we see as a very big trend. Or in companies that are involved in technologies like carbon capture and storage (CCS) and sequestration-ready power plants.3

The demand side, we also think, is an underappreciated opportunity. The efficiency of buildings—insulation, specifically—is low-hanging fruit in terms of economic opportunity. The technology has existed for some time; it just needs to be deployed and implemented more effectively. There are also demand-side opportunities around sustainable mobility and transportation—for example, growth in hybrid vehicles or lightweight materials in vehicles.

The Quarterly: What other indicators do you look for in gauging a company's approach to addressing a sustainability issue such as climate change?

David Blood: In addition to helping us assess the quality of a business model, a company's response to the climate challenge can tell us an enormous amount about a management team. We use its response and engagement in the issue as sort of a litmus test or a lens into the quality of the team. A company's lobbying practices are also an interesting line of inquiry around climate change. Auto companies are telling people that they're wonderfully green all of a sudden, but it's important to evaluate if they are concurrently lobbying against emissions reductions, for example. That gets you to the heart of what is the real truth in a company's culture. If they're lobbying for something different than what they're telling everybody, you've got a problem.

The Quarterly: Any final thoughts for executives trying to understand this trend toward sustainability investing?

Al Gore: Be part of the solution and not part of the problem. Your employees, your colleagues, your board, your investors, your customers are all soon going to place a much higher value—and the markets will soon place a much higher value—on an assessment of how much you are a part of the solution to these issues.

About the Authors
Lenny T. Mendonca is a director in McKinsey's San Francisco office, and Jeremy Oppenheim is a director in the London office.

The authors wish to acknowledge the contributions of Sheila Bonini; Colin le Duc, the head of research at Generation; and Lila Preston, an associate at Generation.

Notes
1 The research, summarized in "The McKinsey Global Survey of Business Executives: Confidence Index, January 2006" (The McKinsey Quarterly, Web exclusive, January 2006), indicates that 84 percent of executives think business has a broader contract with society.

2 Cellulosic ethanol is produced using enzymes to break down vegetation into cellulose (the primary structural component of plants), which is then converted into fuel.

3 Carbon capture and storage (CCS) is an approach to eliminating carbon dioxide emissions from sources such as power plants by capturing the carbon dioxide and then storing it underground in deep geologic formations instead of releasing it into the atmosphere. Sequestration-ready power plants have the appropriate technology equipment and locations to perform CCS.
 

 

Drought, pollution, mismanagement and politics have made water a precious commodity in much of the world / Minute quantities of everyday contaminants in our drinking supply could add up to big trouble


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  MSNBC.com


Newsweek.com

Drought, Pollution, Politics Spark Water Crisis
Drought, pollution, mismanagement and politics have made water a precious commodity in much of the world.
By Mary Carmichael
Newsweek

June 4, 2007 issue - Daily life in the developed world has depended so much, for so long, on clean water that it is sometimes easy to forget how precious a commodity water is. The average American citizen doesn't have to work for his water; he has only to turn on the tap. But in much of the rest of the world, it isn't that simple. More than a billion people worldwide lack clean water, most of them in developing countries. The least fortunate may devote whole days to finding some.

When they fail—and they fail more and more often now that rivers in Africa and Asia are slowly drying up after decades of mismanagement and climate change—they may turn to violence, fighting over the small amount that is left. Water has long been called the ultimate renewable resource. But as Fred Pearce writes in his book "When the Rivers Run Dry," if the world doesn't change, that saying may no longer apply.

Like the famines of the '80s, the global water crisis is far more than a straightforward issue of scarcity. Accidents of geography, forces of industry and the machinations of politics may all play a role in who gets water—just as warlords, as well as droughts, were responsible for starvation in Ethiopia. In many ways, the famines contributed to today's man-made droughts: the crops grown in the worldwide "green revolution" of the past three decades sated hunger but sapped water in the process. "As the globe gets more crowded," says Susan Cozzens, a policy professor at Georgia Tech who is working on water problems, "the old arrangements just don't work anymore."

There is still time for nonprofits and governments to fix things. "Chlorination, gravity-fed distribution systems, taps at every household, all these could make a difference," says John Kayser of Water for People, a nonprofit working in the developing world. Ecoconscious start-ups in the United States and Europe are increasingly offering new ways of purifying water, from high-tech (but inexpensive) ultraviolet filters to simple tactics such as filling clear bottles and letting the hot sun kill the bacteria inside.

But thus far, there has been no worldwide "blue revolution." More likely, says Pearce, we'll "only really start to worry about the water when it isn't there." Here are some flashpoints, regions where the future of water is most worrisome.

CHINA
Population:
1.3 billion
Crisis:
Pollution

China's Poisoned Water. To look at the mighty Yangtze River, you might think China could not have a water crisis. The third longest river in the world, it funnels 8 million gallons into the East China Sea every second. The river drives the world's largest hydroelectric dam, the Three Gorges, and it is one of the backbones of the country's economy.

When you look more deeply into China's water supply, however, you'll see plenty to worry about. The government has long known that the Yangtze is polluted. In 2002, Beijing announced a $5 billion cleanup effort, but last year admitted that the river was still so burdened with agricultural and industrial waste that by 2011 it may be unable to sustain marine life, much less human life. An April report by the World Wildlife Fund and two Chinese agencies found that damage to the river's ecosystem is largely irreversible.

Travel farther north, especially near the country's other major water system, the Yellow River, and the picture is even bleaker. Since the 1980s, drought and overuse have diminished the river to a relative trickle. Most of the year, little to none of its water reaches the sea, says Pearce. What does still flow in the Yellow is often unsuitable for drinking, fishing, swimming or any other form of human use. Every day, the river absorbs 1 million tons of untreated sewage from the city of Xian alone.

Nowhere is China's pollution problem more visible than in the tiny "cancer villages" that dot the country's interior. Shangba, a town of 3,000, captured national attention a few years ago after tests found that heavy metals in its local river far exceeded government levels. Officials from a nearby state-owned mine—suspected of dumping those chemicals into the water—persuaded the government to pay for a new reservoir and water system built by locals. But other, smaller cancer villages are still struggling. In the southern hamlet of Liangqiao, rice grown by villagers with water from a local river has taken on the reddish hue of contaminants from the same iron mine that blighted Shangba. Since the late 1990s, cancer has caused about two thirds of the 26 deaths in the village. "We have to use the polluted water to irrigate the fields, since we have no other choices. We don't have any money to start a water project," says Liangqiao resident He Chunxiang. "We know very well that we are being poisoned by eating the grain. What more can we do? We can't just wait to starve to death."

There is hope yet for Liangqiao. Environmental lawyer Zhang Jingjing is filing a lawsuit against the mine on behalf of the villagers, and she has a strategy that focuses on loss of crops instead of loss of life. (Chinese courts are often reluctant to link cancer to pollution.) But win or lose, Liangqiao is a tiny part of the problem. It has just 320 people. Meanwhile, almost 400 million Chinese, fully a third of the country's population, still have no access to water that is clean enough for regular use.


INDIA
Population:
1.2 billion
Crisis:
Poor distrubution

India's "Hydrological Suicide." In this country of 1.1 billion, two thirds lack clean water. "Sanitation for drinking water is a low priority there, politically," says Susan Egan Keane of the Natural Resources Defense Council. The priority is agriculture. In the '70s and early '80s, the Indian government made this clear by pouring money into massive dams meant to pool water reserved for farms. "In many of these developing countries, the vast majority of their fresh water goes to irrigation for crops," says Egan Keane. "Agriculture may make up only 25 percent of the GDP, but it can get up to 90 percent of the water."

That's not to say, however, that India's farmers have enough. They are actually running low. The government built dams, but it failed to create the additional infrastructure for carrying water throughout the countryside. At the same time, factories have drawn too heavily on both the rivers and the groundwater. In Kerala, a Coca-Cola plant had to be shut down in 2004 because it had taken so much groundwater that villagers nearby were left with almost none.

Some farmers have reacted wisely to the dropping water levels by switching to hardier crops. Kantibhai Patel says he stopped growing wheat on his farm in Gujarat, the epicenter of India's water shortage, after eight years of watching his bounty and income shrivel in the sun. He farms pomegranates now, which require far less water than wheat. Experts hope more farmers will follow Patel's lead. So far, most farms still focus on water-guzzling crops like wheat, cotton and sugar cane. Indian dairy farmers also cultivate alfalfa, a particularly thirsty plant, to feed their cows, a practice Pearce calls "hydrological suicide." For every liter of milk the farmers produce in the desert, they consume 300 liters of water, says Saniv Phansalkar, a scholar at the International Water Management Institute. "But who is going to ask them not to earn their livelihood," he asks, if the dairy farms are keeping them afloat for now?

To nourish their plants and cows, most Indian farmers have resorted to drawing up groundwater from their backyards with inexpensive pumps. When the pumps don't bring up enough water, the farmers bring in professionals who bore deeper into the ground. There is constant pressure to compete. "If one [farmer] is digging 400 feet into the ground, his fellow farmer is digging at least 600 feet," says Kuppannan Palanisami, who studies the problem at Tamil Nadu Agricultural University. The water table, he says, drops six to 10 feet each year.


WEST BANK
Population:
2.75 million
Crisis:
Shortage

The West Bank's Water Wars. Like the Chinese, the people of the West Bank wouldn't have a huge water problem if nature were the only force involved. Rain falls regularly on their hills and trickles down into the rocks, creating underground reservoirs. Unfortunately for denizens of the West Bank, that water then flows west toward Israel. Palestinians are largely banned from sinking new wells and boreholes to collect water, and they pay what they consider inflated prices to buy it. Meanwhile, the groundwater level is dropping, and Palestinians accuse Israelis of overusing. "[The Palestinians] sit in their villages, very short on water," says Pearce, "and they look up at their neighbors and see them sprinkling it on their lawns."

Battling over water in this region is nothing new—the Six Day War started with a dispute over water in the Jordan. Lately, on the West Bank, the water table is dropping and tensions are rising. Israeli soldiers have been accused of shooting up water tanks on the West Bank in retribution for terrorist acts, and Palestinians have been caught stealing from Israeli wells.

It is impossible to untangle the water problem in Israel and the Palestinian Authority from the overall animosity between the two groups. Conversely, says Pearce, "the wider problem between the Palestinians and the Israelis won't be solved until the water problem is solved." On the West Bank, it's a Catch-22, with water—and life—on the line.

With Sarah Schafer in Beijing and Sudip Mazumdar in New Delhi

URL: http://www.msnbc.msn.com/id/18881798/site/newsweek/page/0/


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  MSNBC.com


Newsweek.com

Rivers of Doubt
Minute quantities of everyday contaminants in our drinking supply could add up to big trouble.
By Anne Underwood
Newsweek

June 4, 2007 issue - The common white sucker is nobody's favorite fish. It's a bottom feeder that trout fishermen in Colorado happily toss back into the water. But it's also what scientists call a sentinel—a species whose health (or lack thereof) can warn us about problems in the environment. So imagine the reaction of environmental endocrinologist David O. Norris of the University of Colorado when he discovered some alarming changes in the sucker population of Boulder Creek. Upstream, where the water flows pure and clear out of the Rocky Mountains, the ratio of males to females is 50-50, just as nature intended. Downstream, below the wastewater-treatment plant in Boulder, the females outnumber the males by 5 to 1. Even more worrisome, Norris found that about 10 percent of the fish were neither clearly male nor female, but had sexual characteristics of both. "On the one hand, we were excited [to make such a dramatic finding]," says Norris. "At the same time, we were appalled."

There's something fishy in the nation's water supply. True, its quality has improved dramatically since passage of the Clean Water Act in the 1970s. Toxic substances and pollutants are now routinely filtered out. But across the nation, something's causing disturbing effects on aquatic wildlife. In a search for culprits, scientists are zeroing in on a group of compounds they call "emerging contaminants," including pharmaceuticals, cosmetics and antibacterial soaps. Although we like to think that these compounds disappear when we wash them down the drain or flush them down the toilet, a lot of them are clearly ending up in water. Could they possibly affect human health? At this point, no one knows for sure. "We have lots of questions, but very few answers," says environmental chemist Christian Daughton at the Environmental Protection Agency.

Scientists aren't worried about any one of these chemicals in isolation. Most are found in minute doses, if they're found at all. Toxicologist Amy Perbeck at the Michigan Department of Environmental Quality calculated that the levels of ibuprofen in Michigan drinking water were so low that a person would have to consume 17,000 gallons to get the amount in one pill. But new technology is allowing scientists to screen for mere traces of compounds, down to levels that were previously undetectable—and they find just about everything they look for. A 2002 study by the U.S. Geological Survey detected such compounds in 80 percent of the 139 streams it examined, many of which were downstream from urban areas. None of the chemicals on its own appears to be toxic at minuscule doses. "But what happens when a person is exposed to a whole cocktail of them?" asks Perbeck.

The emerging compounds of greatest concern to most scientists are the "endocrine disrupters." These are chemicals in the environment that mimic hormones when they get into the body. An astonishing array of chemicals fall into this category—not only natural and synthetic hormones, but also chemicals in certain cosmetics, shampoos, shaving lotions, skin creams, dishwashing liquids, pesticides, flame retardants, plastics and antibacterial soaps. Like actual hormones, "they have effects at exceedingly low levels," says Herb Buxton, coordinator of the Toxic Substances Hydrology Program at the USGS. Because so many of them bind to a certain type of receptor in the body—whether for estrogens, androgens or thyroid hormones—the effects add up.

Judging by fish populations, the result isn't good. Scientists have found "feminized" male fish in the Mississippi, Ohio, Allegheny, Monongahela, Shenandoah and Potomac rivers. Unlike the abnormal Boulder Creek fish, which had both ovaries and testes, most of these fish are clearly males. But their testes contain some ovarian tissue that produces immature eggs, and their livers are producing egg-yolk proteins. In lab studies, scientists have also shown that male fish exposed to estrogenic compounds during early development have lower sperm counts and worrisome behavioral changes. In one experiment, Heiko Schoenfuss, head of the aquatic-toxicology lab at St. Cloud State University in Minnesota, exposed male fathead minnows early in life to estrogenic chemicals called alkylphenols (which come from some common industrial and household cleaners)—and discovered that as adults, they failed to defend their territory. The result? They were unable to reproduce successfully because they allowed other males to invade their nesting areas and eat their offspring.

Put it all together, and scientists worry that endocrine disrupters could cause declines in fish populations. In a paper last week in the Proceedings of the National Academy of Sciences, a team of Canadian and American scientists reported the collapse of the fathead-minnow population in a Canadian test lake after low levels of a potent synthetic estrogen were intentionally introduced. In the first year, researchers saw the same kind of feminization of male fish observed in the United States. The next year, says lead author Karen Kidd of the University of New Brunswick, they documented the "near extinction of this species from the lake."


People, thankfully, are less vulnerable than fish, because we don't live and breathe in water. To date, there is no conclusive evidence linking emerging contaminants to human health problems. But scientists wonder if endocrine disrupters in the water are partially responsible for some well-documented trends, including earlier puberty in girls and reduced sperm counts in men. In fish, sperm problems have been linked to waterborne contaminants, including phthalates, which are used in many plastics, cosmetics, skin-care products and pesticides. Reproductive epidemiologist Russ Hauser at Harvard has found an association in men between certain phthalates in their urine and low sperm counts—although he notes that there are multiple routes of exposure in people, including direct absorption through the skin from after-shaves and colognes. Water is only one of many sources. As Devra Lee Davis, director of the University of Pittsburgh's Center for Environmental Oncology, sees it, humans are exposed to so many things over a lifetime that it's hard to prove connections—but problems in wildlife should be a warning. "We have to stop treating people like lab rats in an uncontrolled experiment and start figuring out ways to reduce our exposures," she says.

So how can we keep these chemicals out of the water supply? No one is suggesting that we give up medicines or mascara. There are, however, a few commonsense measures we could take. Look for phthalate-free deodorants and body lotions. The Environmental Working Group has a list on its Web site. Stop using antibacterial soaps. Numerous studies have found that washing with regular soap is just as effective. And learn how to dispose of drugs properly. Most shouldn't be flushed. Some municipalities will even dispose of them along with hazardous waste.

If you're truly worried about drinking water, the answer isn't bottled water, which in many cases is just bottled tap water—and requires large amounts of energy to transport. Consumer devices for removing contaminants include charcoal filters, tabletop water distillers and purification units that use reverse osmosis. They can all take out a wide variety of chemicals. The fish should be so lucky.

URL: http://www.msnbc.msn.com/id/18881799/site/newsweek/page/0/

30.5.07

World Bank Institute Alumni Newsletter (Issue 2, May 2007)


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World Bank Institute Alumni Newsletter (Issue 2, May 2007)






World Bank Institute Alumni Newsletter (Issue 2, May 2007)


The WBI Alumni Newsletter aims to reach people who have been participants in WBI activities and who want to keep in contact with WBI and/or other WBI Alumni. We invite you to forward this newsletter to colleagues and friends who you think might also like to receive it so that we can reach interested WBI Alumni.

The quarterly WBI Alumni Newsletter will help provide you with a concise and timely selection of news and information from WBI, with clickable related links for most items. Let us know what YOU would find most useful for us to include in upcoming issues of the WBI Alumni Newsletter by sending an email with "Comments" in the subject line to:
wbialumni@worldbank.org.

Given the large number of email responses to the first newsletter, if you would like to request information, please include "Info Request" in the subject line in your reply to this email so that we can get back to you more quickly. We also invite you to visit the WBI Alumni webpage at:
www.worldbank.org/wbi/alumni. We look forward to hearing from you.

In this issue:

1. WBI Alumni Survey: Results & Next Steps
2. Capacity Day 2007: Leadership Matters - Vision, Effectiveness and Accountability
3. Improving Governance & Fighting Corruption: Public-Private Partnerships
4. Private Sector Tackles Malnutrition
5. Scaling Up Agricultural Water Development in Sub-Saharan Africa
6. To Receive this Newsletter or Manage Your Subscription

1. WBI Alumni Survey: Results & Next Steps


Thanks to the nearly 900 people who participated in the WBI Alumni Survey posted on the WBI Alumni webpage! Participants were asked to rank order the top three priority areas that they would most like to see developed for WBI Alumni. The most popular choice was "access to new and updated course materials" which was selected by nearly 80 percent of those who responded. Many people are interested in being in contact: we found that only 11 percent of those surveyed have stayed in frequent and regular contact with WBI staff or other alumni, 33 percent have maintained some contact, and 55 percent haven't been in contact but are interested in this. Many people sent in useful comments and suggestions.

Based on the survey results we plan to continue the WBI Alumni Newsletter on a quarterly basis. As an initial step in responding to your top priority, we have also started a section linked from the WBI Alumni webpage where we will provide access to some of the new and updated course materials and other resources, in particular from the WBI Learning Programs. We will also outline various search options and ways to browse through materials available through WBI's Library of Learning Objects. Based on the feedback we received, we have also started a WBI Guest Book, linked from the Alumni webpage, where you can share some of your experiences with us.

********************

2. Capacity Day 2007: Leadership Matters - Vision, Effectiveness and Accountability


A distinguished group of world leaders came together April 19 at WBI's Capacity Day 2007 to tackle challenging questions about leadership and how best to support leaders and institutions of leadership in developing and transition countries. Keynote speakers fueled the dialogue with ideas and concepts rooted in their experience, including Liberian President Ellen Johnson-Sirleaf, Xue Lan, executive associate dean of the School of Public Policy and Management at Tsinghua University in China, and Haja Nirina Razafinjatovo, minister of national education and scientific research in Madagascar. Discussants and commentators came from civil society, the private sector, academia, think tanks and donor agencies.

Capacity Day was divided into four interactive sessions: new leadership teams in fragile states, institutionalizing leadership development in Middle-Income Countries, leadership development through accountability and results, and building an agenda for more effective leadership development. Two types of agenda were identified in going forward: improved communications between clients demanding leadership services, the suppliers of such services, and intermediaries or brokers such as the World Bank about the lessons of experience; and a stock-tacking or research agenda to determine the need for new initiatives to strengthen the focus on leadership in support of enhanced accountability and results in partner countries.

Related Links:
1. Article:
Capacity Day 2007: Leaders on Leadership (also available in French and Spanish)
2. Capacity Day website:
www.worldbank.org/capacity/leadership
3.
B-SPAN webcast coverage of Capacity Day

********************

3. Improving Governance and Fighting Corruption: Public-Private Partnerships


The World Bank's Governance and Anti-Corruption (GAC) strategy, which streamlines governance work into Bank operations, received a solid boost when nearly 500 people from government, the private sector and various branches of civil society gathered in Brussels for a conference on March 14-15, 2007. A parallel 24-hour videoconference with another 500 students from 65 business schools in 35 countries provided recommendations to the conference from future leaders across the globe. The conference "Improving Governance and Fighting Corruption: New Frontiers in Public-Private Partnerships," was organized by the Belgian government and the World Bank Institute, with participation of the Organization for Economic Cooperation and Development.

The gathering was the first major attempt to bring donor countries, developing countries and the private sector together for a major conference on governance and confirmed that they all have a critical role to play. The conference website features multimedia coverage of the main event and video consultation and generated 250,000 visits by the end of the second day of the conference. The site contains podcasts all plenary interventions and many background materials from the conference.

Related Links:
1. Article:
Brussels Conference on Governance, including a link to press coverage of the conference (article also available in French)
2. Conference website:
www.improvinggovernance.be
3. WBI's Governance & Anti-Corruption website:
www.worldbank.org/wbi/governance

********************

4. Private Sector Tackles Malnutrition via Global Alliance

Businesses from China, India, Africa, Europe, and North America highlighted examples of innovative ways to produce and market better fortified products for poor consumers at the second Global Forum of the GAIN Business Alliance from March 22-23 in New Delhi. Their goal is to help tackle malnutrition and protect consumers from micro-nutrient deficiencies. Two billion people worldwide suffer from micronutrient deficiencies and half of all deaths among children under the age of five can be attributed to malnutrition.Technological advances in recent years have helped to make food fortification one of the easiest and fastest ways to improve people's lives on a large scale and to accelerate development.

The forum, jointly organized by WBI and the Global Alliance for Improved Nutrition (GAIN), brought together more than 100 senior executives from companies as diverse as Unilever, Tetrapak, Suneor and Procter & Gamble. The GAIN Business Alliance is a learning and knowledge-sharing platform for companies around the world that provides networking opportunities and helps to make new business connections.Two hundred companies have joined the Business Alliance since its inception in 2005 in Bejing. Since then local chapters have been launched in China, Africa, North America, and Europe. GAIN currently reaches 600 million people with food fortification and it's target is to reach 1 billion by the end of 2007.

Related Links
1. Article:
Private Sector Tackles Malnutrition
2.
GAIN Business Alliance website
3. WBI's Learning Program on
Health & AIDS
4. The World Bank's
Health, Nutrition & Population program


********************

5. Scaling Up Agricultural Water Development in Sub-Saharan Africa


More than 130 experts and government officials representing 32 countries of Sub-Saharan Africa, as well as several North African countries, convened in Ouagadougou, Burkina Faso from March 26 to 28, 2007 to affirm their conviction that the region is ready to re-engage and promote investments in agricultural water development (AWD). Eighty-five percent of sub-Saharan Africa's poor live in rural areas and depend largely on agriculture for their livelihoods. Yet agriculture in the region remains largely a subsistence activity, production has not kept pace with population growth, household income required to afford purchased food cannot be generated, and the numbers of malnourished people are consequently rising.

Hosted by the Regional Association for Irrigation and Drainage (ARID) and organized together with WBI, the workshop on "Scaling Up Agricultural Water Development in Sub-Saharan Africa" was a collaborative effort of five development partners: the African Development Bank (AfDB), the Food and Agriculture Organization of the United Nations (FAO), International Fund for Agricultural Development (IFAD), International Water Management Institute (IWMI) and the World Bank. The workshop also marked the completion of a joint study on "Investment in Agricultural Water for Poverty Reduction and Economic Growth in Sub-Saharan Africa." This study outlines the contributions of agricultural water management to poverty reduction and growth as well as details a series of lessons learned and recommendations to facilitate decision making aimed at increasing investments in agricultural water development.

Related Links:
1. Article:
Africa Re-engages in Agricultural Water Development
2. The
Scaling Up Agricultural Water Development in Sub-Saharan Africa website includes access to the proceedings and background documents (also in French)
3. WBI's
Rural and Water learning program websites

********************

6. To Receive This Newsletter or Manage Your Subscription


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29.5.07

The Solar Decathlon is a competition in which 20 teams of college and university students compete to design, build, and operate the most attractive, effective, and energy-efficient solar-powered house


Thanks again to Lloyd for this one:

http://www.solardecathlon.org (e.g., http://web.mit.edu/solardecathlon/?tr=y&auid=2702674)

About Solar Decathlon

The Solar Decathlon is a competition in which 20 teams of college and university students compete to design, build, and operate the most attractive, effective, and energy-efficient solar-powered house. The Solar Decathlon is also an event to which the public is invited to observe the powerful combination of solar energy, energy efficiency, and the best in home design.

The event takes place in fall 2007 on the National Mall in Washington, D.C. The teams' houses and the sponsors' educational exhibits form a solar village

Teams of college students design a solar house, knowing from the outset that it must be powered entirely by the sun. In a quest to stretch every last watt of electricity that's generated by the solar panels on their roofs, the students absorb the lesson that energy is a precious commodity. They strive to innovate, using high-tech materials and design elements in ingenious ways. Along the way, the students learn how to raise funds and communicate about team activities. They collect supplies and talk to contractors. They build their solar houses, learning as they go.

The 20 teams transport their solar houses to the competition site on the National Mall and virtually rebuild them in the solar village. Teams assemble their houses, and then the active phase of the Solar Decathlon begins with an opening ceremony for students, media, and invited guests. The teams compete in contests, and even though this part of the Solar Decathlon gets the most attention, the students really win the competition through the many months of fund raising, planning, designing, analyzing, redesigning, and finally building and improving their homes. The public is invited to tour the solar homes and event exhibits during much of the competition.

Powerful Living. Real Comfort.

The Solar Decathletes — tomorrow's engineers, architects, researchers, and homeowners — are sharing with us a new vision for living under the sun. These solar homes are powerful, comfortable, and stylish. They are relaxed and elegant, wasting neither space nor energy.

Today's solar houses connect with nature to take advantage of heat and light from the sun and cooling breezes and shading. But they crank this natural advantage way up by using the newest products and technologies on the market. The Solar Decathlon solar homes combine the best from the past and the present... and deliver the promise of a brighter future.

You can see it all at the solar village. These solar homes, born from the imagination and creativity of 20 collegiate teams, are powered entirely by the sun. Here, nature and technology join together in 20 solar homes unlike any you've ever seen. Visit us on the National Mall. Learn simple ways to improve your own home. Home tours are free... just like the sun's energy.


Weather and climate for non-PhDs


Thanks to Lloyd for this link and info (he doesn't need it, but some of the rest of us do :-) -JFB


As many of you may realize, there is often a lot of confusion and misinformation in the popular press and in other dcouments about issues associated with climate and weather, how they are predicted, etc.  I recently found some good review material produced by several groups in the UK, which may be a useful for you, at http://www.senseaboutscience.org.uk/index.php/site/project/126.  In particular, see http://www.senseaboutscience.org.uk/pdf/Weather&Climate.pdf.