Want Bigger Profits? Cut Carbon.
October 5, 2011
As I pointed out in my first video on Energy Efficiency – it’s a myth that dealing with CO2 will cause economic hardship. The truth is exactly the opposite. The graph above shows how one major US company has continually cut greenhouse gases since the mid-nineties, and has realized more than 9 billion dollars in increased profits from that effort.
The global companies with the sharpest focus on climate change have rewarded their investors with double the average return of the world’s corporate titans. That’s the startling message from the Carbon Disclosure Project, which released its annual Global 500 report on Wednesday.
On behalf of over 550 investment companies, managing $71 trillion of assets between them, the CDP challenged the 500 biggest companies in the world by market capitalisation to reveal detailed information about their carbon footprints and the action they are taking to tackle and adapt to global warming: 404 (81%) responded.
The CDP then compared the total financial returns between January 2005 and May 2011 of the companies identified as “carbon performance leaders” against the average of all 500. The former generated a return of 86%, the latter 43%.
Jonathan Grant, at PwC, which produced the CDP report, told me: “There is very definitely a strong correlation between good carbon performance and good financial performance. But we are not saying that one definitely caused the other.”
Grant suggests that high quality management will perform well on both financial returns and carbon strategy. But he adds: “Many companies point to the financial benefits of carbon strategy in both energy and resource efficiency.” Good carbon performance was defined as transparent reporting of carbon, setting and meeting carbon reduction targets and intelligent responses to both the risks and opportunities presented by changing climate.
Climate Denial Crock of the Week 
October 5, 2011 at 4:50 am
Now just a minute, here! I strongly support the notion that the negative externalities of carbon emissions should be costed back to the emitters… but to suggest that those negative externalities also have negative financial impact just makes no sense. Do you seriously believe that a coal plant that just burns coal for maximum electricity output and doesn’t do anything to limit carbon emissions will make less money that a coal plant that installs extra equipment to reduce carbon emissions?
I can agree that SOME companies can achieve reductions in their carbon footprints in ways that also increase profits. For example, let’s take some monster-huge law firm. They don’t burn anything, log anything, or mine anything. They do, however, use a lot of lighting. Replacing low-efficiency lighting systems with high-efficiency lighting systems lowers their carbon footprint AND saves money. That’s great!
But it’s not honest to extrapolate that example to the whole world. There are some enterprises for which a reduction in carbon footprint is impossible to achieve without a reduction in profits. The most obvious of these is fossil-fuel power plants. These things are already operating near the technological optimum of efficiency; they can’t squeeze much more raw efficiency out of them. The only way for them to reduce their carbon footprints in any significant manner is for them to sequester their output — and that entails a lot of expensive equipment. Those expenses must come out of profits.
There are a great many other objections to drawing large conclusions from this report: the obvious “correlation does not mean causation” objection and the equally obvious “self-selection” objection. There’s also the objection you already mentioned: well-managed companies tend to make higher profits, and well-managed companies also reduce their costs in any way they can, which often means reducing their carbon footprint. Reducing their energy intensity (joules of energy consumed per dollar of revenue generated) makes sense primarily because of the steeply rising price of energy. Indeed, I would go so far as to speculate that most of the results seen in this report really reflect an effort to decrease energy intensity rather than carbon footprint. Yes, the two are inextricably linked, but the reduction in carbon footprint is not the driving economic force here: it’s the price of energy.
To be specific, I think that this sentence is misleading:
The global companies with the sharpest focus on climate change have rewarded their investors with double the average return of the world’s corporate titans.
A more honest statement, I think, would be something like this:
Sharp increases in energy costs have driven many companies to lower the energy intensity of their operations, which in turn has had the salutary effect of reducing their carbon footprints as well.
October 5, 2011 at 1:43 pm
we now have two very credible studies showing that the societal costs of coal burning far exceed the “value added” to the society. in other words, each lump of coal that we burn makes us poorer as a nation – even setting aside the climate issue, – due to negative impacts on health, primarily, but also water resources, habitat, and negative impacts on valuable bio-systems.
fortunately, we’ve reached a point, or will very soon, where solar and renewable costs are dropping so fast that a new coal plant started today will not be competitive with renewables by the time it is ready to go. — so the smart utilities will indeed save money, and avoid the need to either sequester carbon, or abandon new coal plants, by moving today to a profit model based on efficiency and renewable energy. Of course, most of them need help from regulators to get there, so that’s where an informed public comes in to apply pressure and make that happen.
October 5, 2011 at 3:00 pm
I strongly agree with your observation that the aggregate costs of coal burning are horridly high; if the externalities were properly added into the costs experienced by the power company (most likely via a Pigovian tax), then coal would instantly become very much a losing proposition. This is an example of how free markets can fail to be truly “free” (in the sense of correctly allocating costs) without government intervention.
On your second point, regarding the likelihood of coal remaining competitive with solar and wind, I think we need to develop a stronger national grid before we can effectively bring the lower costs of solar and wind to bear. For this, we need to get moving on a grid with an HVDC backbone, and again I think that requires some government stimulus to get the ball rolling. Once we get some HVDC lines in place, the network effects will take over and the market will fill in the rest of the network.
Implicit in your observation is the belief that solar PV is already cost-effective over most of the USA, a belief that I’m wary of. I don’t flatly deny it, but my own opinion is that solar PV is definitely the only way to go in the American Southwest, especially because the supply so closely tracks the demand, making load management an almost trivial problem.
But for the Northeast, I still have many reservations. I’d like to see some really solid long-term data for a broad range of installations before I’m convinced. There are just so many problems with cloudiness, load management — and who’s gonna sweep the snow off of them in the winter? 😉
In general, I think we should rely on solar hot water as the “foot in the door” technology for solar PV. It enjoys much greater cost-to-benefits and gets people started with the idea of home energy installations. Once we’ve got millions and millions of those things all over the country, then we can start talking about solar PV in the home.
In the meantime, peak load pricing schemes would go a long way towards easing us into the future.
October 5, 2011 at 1:10 pm
Greenman,Here in Tulsa a group of 56 are part of Occupy Wall Street ,which is huge for activism..I am the only one connecting Green issues to this movement..Advice??Plans to keep the end of life on the planet in the discussion..?
October 5, 2011 at 1:36 pm
I think you should hang in there. My sense is that the Wall street occupation could be hugely important – as much as the mainstream media wants to distort, ignore, and diss the situation. It is shining a light on a root problem in the democracy right now, and more mainstream groups, veterans, nurses, pilots, have been joining in. there are other actions going on across the country, if you can’t make it to Wall st, you could try a demonstration in front of your local reps office – as far as tying it to climate change, — well, you make yourself a sign that says, “Wall street is screwing the climate like its screwing the taxpayer” – or something like that, and voila, you’ve made the connection. now go stand in front of a camera.
there are no rules. make it work.
October 5, 2011 at 3:20 pm
I have reservations about linking the Occupy Wall Street movement with climate change. First, it confirms the impression many people have that this issue is intrinsically political: that a leftwinger believes in ACC and a rightwinger doesn’t. That, IMO, weakens that case for ACC, which is a scientifically supported hypothesis.
I realize this issue is a wriggling can of worms. The rightwingers have already made it a political rather than scientific issue; should the left wing respond in kind? If the left doesn’t stand up for ACC, who will? And if scientists refuse to dirty their hands with pedestrian political controversies, will the public ever understand the science?
However, in this particular case, I think that the Occupy Wall Street movement is still too far to the left to command the respect of most Americans. Demonstrations, especially ones in which people get arrested, leave a sour taste in the mouths of many middle-of-the-road Americans. I think that associating ACC with that imagery is bad for the political progress of ACC.
In March of 2000 there was a political cartoon that proved to be remarkably prescient. It showed a somewhat elderly hillbilly type standing in his snow with his rifle, while a hundred feet away his wife had emerged from their cabin, shouting “Pa! There’s men marryin’ men in Californy!” The caption of the cartoon was “The day Al Gore lost the election”. I think that cartoon nailed it: the gay marriage movement really brought the conservatives out of the woodwork, galvanized them as a political force. That election was extremely close; I’m absolutely certain that, had the gay marriage movement held back, Mr. Gore would have been elected. Now, more than a decade later, that movement has achieved much success in that the majority of Americans now accept the notion of gay marriage. But on the other hand, we got Mr. Bush, the Iraq war, nearly 6,000 dead Americans, tens of thousands of crippled young men, perhaps a quarter million dead Iraqis, and two trillion dollars thrown down the drain. Was it worth it?