Archive for the 'carbon footprint' Category

Taxing Coal is not the solution for the environment

Summary 

  1. Taxing the coal used to produce power will encourage the use of biomass and the use of gas. This is good for the environment.
  2.  Taxing coal (any energy tax for that matter) however increases the costs of energy for industry and will make the business case for new investment in Europe less attractive. Industry might leave Europe or go under. This carbon leakage has been a slow but gradual process the past 20 years.
  3.  Industry leaving Europe or stopping production is good for the environment in the short run but not in the long run as an economic slowdown will also slow down innovation. 
  4. A better way for the Dutch government and Europe would be to opt for a tax on the carbon footprint of a product. Taxing the carbon footprint would give producers with a low carbon footprint an immediate advantage and would be a much stronger incentive to change than any level of a coal tax. This will be better for the environment. 

Taxing coal in The Netherlands. 

The Dutch minority government supported by several parties in parliament has announced it will increase the tax on coal used for power generation from 1 January 2013. The increase is effected by scrapping the tax exemption based on which power generators currently do not pay a € 13,73 per ton levy for coal used to generate power. This new measure (part of the austerity package as published on the 25th of May) will increase the costs of each MWh of power with approximately € 3 or 4,5%. 

More Biomass Co-firing. 

The measure will encourage the use of biomass in coal fired power stations. A move to biomass co-firing was already under way but we might well assume that this will make the use of biomass more attractive.

 More Gas powered generation. 

The measure should also encourage the use of gas powered generation. The merit order (i.e. the order in which power stations are put on line) depends on the spark spread (the difference between the price of the material burned to produce the electricity (gas, coal, biomass) and the price of the electricity produced.

 Lower CO2 emissions. 

Both effects (the use of more biomass and the use of gas) will reduce CO2 emissions. Gas has a 50% lower CO2 content than coal. The reduction of CO2 by co-firing biomass depends on the extent to which biomass can replace coal. Currently Dutch coal power generators currently use up to 25-30% biomass. The general expectation is that a replacement with up to 40% is within reach. 40% co-firing of biomass will mean that the coal fired installations will be as efficient as gas powered installations.

The New EU’s Emissions Trading Scheme (ETS). 

Assuming the ETS will be continued and that the European Council will agree on the such an allocation of emission rights that the prices will be at Swiss (€ 25 per ton) or Australian levels (€ 18 per ton) the new ETS will strengthen the move towards biomass and gas. 

The effects of higher energy costs on industry.

 European producers of aluminium, copper, steel, fertilisers, paper, cotton, certain plastics and chemicals will be able to receive financial support for their higher electricity bill after the introduction of the new ETS. The main aim of this subsidy is to avoid energy intensive industry moving outside Europe (or not coming toEurope). This is obviously only a temporary stop-gap. The financial support will be temporary, it will be partial and it relies on political whims. It will therefore not encourage investment and only delay divestment.

 The subsidy in other words will only cost the European tax payer money, will not stop or reduce pollution and only delay the gradual de-industriliasation of Europe.

 A lasting solution. 

A better way for the Dutch government and Europe would be to opt for a tax on the carbon footprint of a product. Taxing the carbon footprint would give producers with a low carbon footprint an immediate advantage and would be a much stronger incentive to change than any level of a coal tax. This will be better for the environment. 

Imagine production in Greece being powered by solar energy. Low labour costs (as Greece is trying to regain competitiveness) and low CO2 emissions will give their products a real advantage on the European market.

On the other hand, products from polluting factories is the US or China will be at a disadvantage as their high carbon footprint will mean higher prices in the European shops. 

It is now possible to determine the carbon footprint for each products on the supermarket shelves. The British Standard Institute has developed the standard for measuring and Walmart in the US and Casino inFrance already have their products labeled with the exact carbon footprint related to the product.

Felix Gruijters

The Leadership required for Sustainability.

The leadership required to change a company to embrace Sustainability.

CSR gives a competitive advantage

For most companies Sustainability should have seized to be a marketing tool. There is sufficient proof that companies with a strong emphasis on CSR (of which sustainability is an important aspect) out perform their peers. This makes sustainability (and the other aspects of CSR) a strategic tool to improve the company.

CSR means fundamentally changing the DNA

It is also clear to most companies that sustainability should be more than window dressing. A company that does not fundamentally incorporate sustainability into its product and services will not convince consumers and find that its efforts do not bring the returns it feels it deserves.

 

  • First of all it should be clear that the company cannot continue doing what it has been doing in a different way. Taking sustainability serious means that companies have to look at the way they do their business in every aspect of that business. The cars driven by its sales people, the number of flights taken by senior management, the energy use of its offices, the extend to which it adheres to the cradle to cradle principle and the complete carbon footprint of its products and services.
  • Secondly companies should realise that sustainability is a long process. Management cannot implement a quick top down programme, sustainability has to be incorporated in the DNA of the organisation in a determined and if necessary prolonged move.

Strong modern leadership is required

Embracing sustainability however is not an easy task. It requires fundamentally changing the company and therefore requires strong leadership. This leadership is different from traditional leadership.

5 leadership practices are relevant

1. Use the momentum
2. Change selectively
3. Encourage experiments
4. Create openness and frankness
5. Crowd-source ideas

1. The leader should use the momentum of the current economic slowdown to install the need for fundamental change. He should create an urgency to change what and how work is done and who does it. This is a delicate task as too much pressure can cause panic and inertia, whereas too little pressure will lead to a return to old ways.

2. The leader should only change those things and move those people that prevent the required change; not everything has to be changed.

3. The leader should encourage experiments. The vision does not have to be produced as a Grand Design by the senior management, it has to be the consequence of much trial and error.

4. The leader should encourage a culture of openness and frankness. In many companies the status quo is protected by higher management preventing any sound of discontend or change to surface at the top floor.

5. The leader should mobilize everyone withing the organisation using for instance the newly developed crowd sourcing methods.

Felix Gruijters

Natures tells us how to save it

This blog deals with the lessons Nature teaches us when determining our strategies to save it. Nature has a strong ability to regenerate and is build on self supporting and self regulating cycles. The best way to save nature is to use the strength within it. Do not protect it like it is something we can actually handle, we cannot. Nature and its strengths are bigger than government regulation and its unintended consequences.

The reason to write the blog is the continuing debate between the believers in progress and the propagators of restraint and avarice.

On the 14th of May Trouw ( a Dutch Daily newspaper) published and article of Johan ten Hove.  Ten Hove claimed in the article, like a true Malthusian, that we should not be happy with the (small) economic growth for Europe in 2012 as predicted by the European commission. As economic growth leads to extra pollution it would be better to have no growth or even a reduction of wealth. Amazing to all those who have followed the various doom-sayers over the years, Ten Hove received support from Han Horstink (Trouw 19 May 2012).

I have not yet come across the prophet of doom whose predictions has actually come true. Two lessons from Nature tell us why.

1. Nature works in cycles which automatically rebalance Nature. More CO2 means that trees can grow faster, increasing the ability of nature to take up more CO2.  The problem is:

  • that we take away more trees than is compensated for the quicker growth of the remaining trees.
  • that the growth in CO2 emissions is a lot faster than trees can take it up by growing – it is a matter of timing.

A continued emission of great quantities of CO2 will in the end have disastrous consequences for a great part of humanity. But once human interference has gone and CO2 emissions are very low, nature will be able to slowly take up the CO2 from the air and rebuild an atmosphere in which human (and other life) can prosper once again.

If we do not want this natural process to happen we will have to reduce our CO2 emissions ourselves and build a bio based CO2 neutral economy. To do this innovation is essential.

2. Nature has a tremendous capacity too regenerate. Their is little left of the BP oil spill, not because volunteers cleared the beaches, but because bacteria in the sea eat the oil. More oil, more bacteria – here too it is a matter of timing, nature takes time, more time than it is given by our impatience.

In the knowledge that nature will restore order our policies should be aimed at supporting nature’s ability. We should not try and continue what we are doing but we should change what we are doing.

It is not a matter of less of the same , but a matter of more of something different.

Nature tells us that it can save itself but, if we want to support it, Nature suggests we find ways to grow (genetically modified) crops on arid land, drive our cars on bio-fuels (second and third generation), make plastic from grass (similar to the Coca cola plant bottle) etc. If we find ways to reduce our carbon footprint, nature will take care of the rest.

No need to promote a return to the 1950’s or earlier. Let’s embrace progress and let Nature do the rest.

Felix Gruijters

Will the environment survive the economic downturn?

Will the environment survive the economic downturn?

Saving PV film producer Heliantos

The past weeks the news from the renewable front has not been good. Today the first ray of sunshine in a while was that Vattenfall might have found a buyer for its solar film factory, Heliantos. It would be great news if true, giving Heliantos and its new owner a chance to continue building on the knowledge and expertise that Nuon/Vattemfall have invested in so heavily over the past 8 or so years.

A call to revive the Green Agenda

An article in the Financial Times of the 7th of May brings together some of the news items of the past weeks. Lord Smith to call for a green agenda revival.

In the UK as in other countries (for Germany the subsidies for solar were cut on the 23rd of Februray 2012) the government is cutting back on subsidies for renewable power. Austerity bites everywhere and thus also into the subsidies for renewables. This makes logical sense as there is no strong political reason why renewables should be excluded from the cut backs.

The Greens are being overshadowed by left and right wing populists

There is still strong supporters for green politics in Europe; in the quoted article Lord Smith refers to the success some of the green parties have had in UK by-elections, and he could have quoted the strong performance of the Greens is Schleswik Holstein, but this support is substantially smaller than the main voter’s sentiment, which is against reform and change and in support of maintaining existing welfare support and job security. In the Netherlands the no-change/anti reform parties (the SP on the left and the PVV on the right) are predicted to get a third of the seats in parliament. Their no change mantra could well lead to inertia in politics.

A lack of funds due to the economic slowdown and policies paralised by populist movements in or outside government do not bode well for the renewables industry and the environment.

The price for CO2 emission rights

It will be very interesting to see what the European Parliament and the European Council will decide in June on the CO2 emission rights. Will they again be over generous when allocating emission rights or will they “set a side” some rights, creating a true market for CO2 emission rights? It is telling that currently CO2 emission rights in the EU (@ less than €7 per ton) are cheaper than in Australia (@ 23 Australian dollars per ton). The UK has been leading the way with their carbon floor price.

It is obvious that a EU carbon tax could lead to carbon leakage. This is a very gradual process, it does not happen overnight. But a carbon tax will influence investment decisions and those decisions will not be in favour of investment in the EU. The compensation and opt outs offered by Chancellor Osbourne will not stop the leakage, it will only give international firms higher profits before the decide to invest in the US or Asia.

Introduce the CARBON FOOTPRINT TAX

The only way out of the inertia, providing the development of the green economy a much needed boost is the introduction of a carbon footprint tax. This is not a carbon tax on energy producers or other major users of fossil fuels. It is a tax on the carbon used developing, producing, transporting an selling a product or service.

It is a fact that we can measure the carbon footprint of a product, from raw material to shop shelve. Let us take these measurements and use them to base a tax on. Products with a high carbon footprint will be taxed higher, giving producers an incentive to compete on carbon footprint. Suddenly the incentive would be to preserve forests, reduce the use of fossil fuel, invest in the bio based economy.

Better still for all the politicians looking for a way out: the carbon tax will provide much needed revenue and, for Lord Smith, it will revive the green agenda.

Felix Gruijters

Sustainability, investment, supermarkets and summer festivals

Private investment instead of bank loans

 An interesting article today (7 May 2012)  in The Financial Times. It is interesting to see that a rather negative trend in cleantec was given a very positive spin in this article. It is a fact that banks are somewhat reluctant to lend, at the same time venture capital is recovering from various bloodied noses suffered in the economic slowdown. This is a real problem for new clean development technologies requiring (fresh) capital and could put a break on the continuing development of a sustainable society.

The positive spin put on this development is the fact that if banks do not lend and venture capital does not want to participate, the opportunities are available to private investors. Research done by the FT indicates that these private investors are very interested in sustainable and cleantec opportunities and could make up some of the shortfall. This is good news and fits in with a trend we see elswhere. Smaller scale initiatives (in size and value) are taking the lead.

 Sustainability and Supermarkets

 The interest of private investors sits well with cleantec and sustainability. Much of the drive towards sustainability is driven bottom up. Despit the recession the environment remains high on the worry list of consumers. As a result big supermarket chains as Walmart, Casino, Tesco and Albert Heijn have a clear focus on reducing their impact on the environment. The reason transport companies are now also looking at ways of reducing their carbon footprint is forced on them by these supermarkets. That in turn is the reason that energy companies (and I work for one) are developing electric charging possibilities for trucks. Currently trucks, when stopping overnight, have a diesel working to keep the refrigerated goods at the required low temperature. This polluting and noisy habit could soon be a thing of the past thanks to the demand from consumers, translated by the shops they frequent.

 Sustainability and Festivals

 The same should (and hopefully will) apply to the organisers of summer festivals. Many summer (and spring) festivals work with diesel generation. A diesel generator has an efficiency of approximately 30%. I recently made the calculation for a summer theater festival in The Netherlands. During the summer months they produced with their diesel generators 320 ton of CO2. Using electricity this could be reduced to zero if renewable sources were used or it could be halved if we use just “normal fossil based” electricity from the Dutch power generators. Despite the fact that diesel costs are nearly 4,5 times as high as the cost of electricity the move away from generators is slow and is only gradually increasing momentum.

 This is a missed opportunity, it is time that visitors to summer festivals, despite their young age, look further than just the need to consume, to be seen and to see the hottest acts and create some pressure on the organizers and promote the use of power during festivals.

Felix Gruijters

Leadership on sustainability

Urgency breads leadership

A great Daily Chart from the Economist published on the 2nd of May shows the relationship between carbon dioxide and the temperature of the earth. Because the rise in temperature of the atmosphere is influenced by, for instance, the number of particles reflecting sun light  back up before it can heat the earth, the temperature of the oceans is a better guideline. In the chart below a steady rise can be seen in the heat content of the oceans. 

Leadership is not expected from governments
With the above in mind I read the results from the survey done by SustainAbility among 642 sustainability experts from 77 countries. 72% of them agreed that the green economy is the right theme for Rio+20. It is clear that the leaders in business see the importance of reducing their carbon footprint. From the survey it is also clear that change will have to come bottom-up. Consumers, producers of A-brands and investors are pushing sustainability, governments are staring into the headlights of an approaching car unable to react. The survey reflects this: only 13% of the respondents expect Rio+20 to contribute to sustainable development.
Leadership will be rewarded.
For those leaders seeking inspiration I refer to the McKinsey ‘s publication: Solar power: darkest before dawn. McKinsey draws a picture of a bright solar future, expecting between 400 – 600 GW of new installed solar power by 2020 (up form 65 GW now). McKinsey continues by giving advise to leaders of companies operating down stream from the PV panel producers:
1. Develop targeted customer offerings,
2. Minimize acquisition and installation costs,
3. Provide low cost financing.
This is sound advise but not easily implemented. It makes sense to state that those who will find a business model that answers the three requirements, will be favoured by the market.
Solar and Gas will lead the way
The rise of solar is also predicted in the publication by The Economist, The world in 2050, Megachange. Matt Ridley predicts that gas and solar will be the dominant and cheap sources of energy in 2050.
The influence of low gas prices can already be felt as it directly impacts the price of thermal coal, which according to the FT dropped on the 1st of May for the first time in 18 months below $ 100 per tonne. This might encourage the use of coal, which in turn increase carbon emissions. This can only be curbed by strong government regulation, taxing the carbon footprint of products, punishing those that were produced with energy generated by coal fired power plants.

Innovate or reduce?

In this blog:

  1. Politicians should use the carrot and the stick, force energy saving in the short run and encourage innvation for the long term.
  2. A carbon tax putting a floor in the oil price or giving an advantage to low carbon products would be  a long term incentive to innovation.
  3. Irrespective of our (somewhat inert) politicians companies are introducing low carbon policies. They do this because they know their clients want it.
  4. Research has shown that companies which focus on low carbon policies are better at innovation creating their own future.
  5. It is therefore not surprising that PPR, owner of luxury brands Gucci and Yves Saint Laurent, announced it would follow Puma’s lead and present a full Environmental Profit & Loss account by 2015.

1. Question: Innovation OR reduction? Any problem has two solutions. Forego the wanted-end-result and stop causing the unwanted effect or achieve the same end result without the unwanted effect. In other words stop doing what you did or find a new way of doing it. Apply this to climate change and it explains why we have two competing climate policies.

1. On the one hand governments (its environmental arm), our finance departments and most environmentalists encourage us to use less energy. Saving on energy consumption does indeed reduce our green house gas emissions but if it leads to less production it erodes the economic fundamentals of a company. Reduction also does not fundamentally change the process, it means that we still emit green house gasses, reduction therefore only delays a process it does not stop it.

2. On the other hand the same governments (its industry and trade arm) and marketing departments will urge us to innovate. Innovation will create lasting new solutions to the challenges offered by climate change. The problem with innovation is that its occurrence and its effect cannot be predicted and forced. It is more a belief that it will occur. This uncertainty makes it less popular with the profits of climate doom and the environmentalists.

Answer: Innovation AND reduction! In the Harvard Business review of April 2012 these two approaches to climate change have been described and analysed. Roger Martin and Alison Kemper rightly conclude that to save our planet we will need both strategies. Innovation is obviously for the long term whereas reduction is to create a breathing space for a longer term solution. As both stratagies are necessary what should governments do? The answer form Martin and Kemper is clear: put a floor in the price of oil guaranteeing a long term outlook for new technologies.

2. Introduction of a carbon tax?

William Nordhaus the famous Yale professor in Economics and the environment has termed the Kyoto’s mechanism “inefficient and ineffective” and urged their replacement with a global carbon tax that would force consumers and companies, not governments to innovate. A floor in the price of oil or a global carbon tax will encourage innovation and, for the short term, encourage energy saving.With governments running out of cash, continued subsidising clean technology is under threat, a tax on, for instance, the carbon footprint would be a sensible alternative. This would be in line with the suggestion of the ACEA to use tax incentives to encourage the purchase of cars with low CO2 emissions.

3. Climate change has created its own momentum 

It is clear though that climate change has created its own momentum.
1. Irrespective of direct government regulation companies are adapting low carbon policies. This is in line with the findings during the 2012 Davos World Economic Forum: Rising GHG emissions are the third most important topic according to the particiapants. (Severe income disparity and chronic fiscal imbalances came respectively first and second).
2. According to a recent client survey performed by Rackspace, a datacentre in The Netherlands, clients preferred “sustainable partners” in their value chain as sustainability of a link in that chain reduces risk, improves efficiency and increase reward.”
 
4. Focus on climate change makes companies perform better!
 
Interestingly there is a very important side effect to this shift to low carbon policies. Focus on CSR increases innovation,
 
A survey conducted by Xueming Luo, Professor of marketing at the University of Texas and published in  HBR of April 2012 found that companies with a stronger than average focus (top third) on CSR brought out on average, 47 new products a year while companies in the bottom third brought out only 12. This effect is attributed to the fact a focus on CSR strengthens relationships with external stakeholders, including customers, suppliers, nonprofits, and governments. The focus on CSR provides access to a wide body of knowledge which help a company ton stay ahead of  shifts in market preferences, incorporate new technologies and facilitates creative leaps.
 
5. PPR is not afraid to be transparant about its environmental policies.
 
Already at the end of 2011 PPR announced that it would by 2015 provide a monetary valuation of the environmental impacts of its business operations and its supply chain. PPR expects, in line with the survey quoted above, that this approach will serve as a catalyst for the development of a truly sustainable business model.
 
 
 
 
 
 
 
 

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