One Subscriber's Perspective: Managing the Transition to a Low-Carbon economy (Ind. Report)

A few weeks ago I attended the Carbon Forum conference in San Francisco with some 1,400 other stakeholders and interested parties. It was, to say the least, an eye-opening experience. I came away with a number of observations that I would like to share with readers. I back these comments up with over 22 years of field experience with demand side management, sales, and consulting service (with many research reports and testimony preparation).

The Tipping Point Has Been Reached

First of all, it is clear that we have reached the Tipping Point on Climate Change. Regardless of what one believes, we have reached a point where there is no going back. Whenever big money (I'm talking multiple billions!) gets behind a movement it becomes mainstream and gains a sense of legitimacy. Of course, big name politicians, celebrities and a not-always informed media give the issue more credibility. History is full of examples of movements taking the same path as Climate Change. Some resulted in great changes that benefited society. Others resulted in less than promised returns. All of them had unintended consequences that ultimately defined the movement.

It is clear to me that the large movers in the economies of the world (i.e. investment houses, insurance companies, law firms, and of course government) have bought into Climate Change. But, I'm not convinced that the public will fully commit to it once their lives are impacted to the point of major inconvenience. More on that later.

Right now compliance is mostly voluntary, at least in the U.S. But, mitigation is clearly becoming mandatory, and along with that comes mandatory reporting, the scope of which, I believe, is the Achilles Heel of Climate Change.

Lack of Clarity and Understanding . . .

With the great "awakening" of the corporate world to climate change comes the requirement for action - just what that action will be is not clear to most folks. Surveys show that most people do not know how to define sustainability, or what actions they can take to mitigate climate change. Lack of clarity always results in poor compliance.

An old marketing axiom says strike while the fire's hot. Taken in context of today's corporate board rooms that means get ahead of the curve - position yourself to take advantage of this swing to green, minimize your exposure, and paint yourself green, while not clarifying exactly what that means. Besides a lot of green washing, this results in a snowballing campaign of peer pressure that forces generally-worded sustainability statements from virtually every type of organization - often without specific solutions, or recognizing the fact that an incredible amount of measurement, verification and reporting will be required. Considering the fact that many of the rules have not been written yet it makes me wonder if these corporate boards understand fully what they are committing their companies to do.

You can tell a lot about the status of the climate change issue by those who are not present at such conferences. Very few end-users - those who have to implement the rules that will soon come down - attend such meetings. I recall two presentations where the speakers warned of a scenario that is already taking place - companies choosing between keeping plants open and the jobs that go along with them, and meeting the very costly compliance requirements. I'm not convinced that this message is fully understood. Further, the folks writing a lot of the rules fit comfortably in that no man's land where neither executives nor those who will implement policies tread.

The Result is a Disconnect

Another takeaway from this and other conferences is that it is very clear to me that there is a great disconnect between what is being pushed now and what the public thinks will happen. Surveys indicate the public is behind the concept of climate change, though few can actually define what it is. Most people say they will take action such as changing a few light bulbs. But, history shows that absent prolonged price signals actions never live up to rhetoric. If it did, we'd all be efficiency experts and practicing environmentalists.

Any social scientist will tell you that behavioral changes are very difficult to sustain. A great example are the residential air conditioning efficiency efforts - you can make the equipment more efficient (which we have), but past a certain point you just have to turn it off in order to cut operating costs and reduce emissions. State utility commissions have for years scolded the utilities for not addressing the growing AC residential demand. Just as you can't legislate morality, you can't legislate comfort. Those behind the movement are aware of this, and I believe this is one of the main reasons why they believe they must position CC as a potentially catastrophic problem, and whatever costs are required must be borne by everyone.

But, they forget human nature. When the costs are perceived to outweigh the benefits human behavior tends to convert back to where it was before. I contend that the West, and America in particular, is by-and-large made up of very impatient people. You can attack us, even kill a few of us, and we'll take the fight to you - for a little while. Then we'll move on to something else. But, the one thing you can't do with much success - or for very long - is inconvenience us. This is the part of the disconnect I speak of. Absent major recurring catastrophes that effect all of us - that can be pinned definitively on CC - I believe compliance will not match rhetoric. You scream wolf too often people will ignore you. That's a normal human reaction and no one can change it.

View from the Street

My company has seen a noticeable increase in the number of inquiries from large customers that are seeking help with implementation of sustainable initiatives in the last few months. When I began to investigate this I found that a large percentage of these clients represent Real Estate Investment Trusts (REITS). Who invests in REITS? Insurance companies, banks, pension funds and others. I mentioned peer pressure earlier, and this is where it comes in. Many corporations are under increasing pressure to develop a sustainability plan - one that results in actual energy and emission reductions. Consequently, more and more corporations are adopting such measures. That is good. But, they often pass the feel-good measure and send it down the chain to be refined and implemented without much direction or consideration of the potential costs.

I began investigating who the calls were coming from. Almost without exception they were from facilities managers who had no idea how to implement a sustainability policy, from what it entails to how much it will cost. In my conversations with some of these folks I found that corporate boards really didn't understand the cost and time commitment that will be involved. These men and women who must implement (and often design) the policies are now being evaluated on their sustainability performance. The lowest hanging fruit is LEED certification for their facilities. It is clear that a LEED-certified building has lower operational costs, and a lower carbon footprint. This is where things are heading now. But, this is only a transition step. Reporting requirements coming down the road are much more onerous.

What's Missing: Transition

When voluntary compliance gives way to mandatory reporting the game changes dramatically. There are several reporting protocols being studied, and one has to emerge as the standard. The level of detail required is mind-boggling. We're talking the equivalent of investment grade audits of not only direct and indirect emissions, but audits of a company's entire supply chain resulting in independently verified and audited sustainability statements from every supplier - and repeated every year or so. Imagine an office building that must require of all its vendors such a statement. The janitorial company must certify that it is using green chemicals; the trash hauler must account for all of his emissions as he travels to and from the dump; the office supply must have sustainability statements from its suppliers, and so on. Corporations who thought Sarbanes-Oxley was bad just need to take a serious look at what's coming down the pike.

This is why I think we are in for a serious backlash and must tread carefully going forward. Mandatory reporting probably won't be here for a few years. But, who will bear the costs? How will small businesses - the backbone of our economy - respond? How will it affect our competitiveness? Virtually all the bills before Congress right now call for tariffs on goods from countries that do not sign on.

What is needed is a prolonged transition to mandatory reporting, with the assurances that early adopters' actions will count towards future goals (many won't under some of the schemes now being considered). The standards that are finally agreed upon must be drawn up with ease of compliance in mind, especially for small businesses. Forcing massive, mandatory and costly changes to address a problem that most people cannot physically see or are directly impacted by is a recipe for failure - no matter how the argument is positioned. (Source: Contributed Editorial, April 22, 2008).

Contact: Ritchie Priddy, Director of Business Development , Suez Energy Resources NA, (713) 636-1736, ritchie.priddy@suezenergyna.com, www.suezenergyna.com.