The Business Behind Low-Carbon Solutions

Business leaders from across the country convened [2] in Atlanta last month to share critical lessons from developing and deploying low-carbon solutions.  At our Business of Innovating conference, dozens of company leaders [3]—from Coca-Cola and Mars to Dow [4] and Bayer [5]—discussed new products and solutions that are beginning to drive business growth in clean energy while limiting greenhouse gas emissions.  Their efforts reflect a deepening understanding of changes in market preferences and demand for low-carbon solutions. 

Global revenues from new low-carbon energy solutions, energy efficiency technologies and services, and other climate-related businesses reached $530 billion in 2009 [6] and are projected to surpass $2 trillion by 2020.  Businesses are making these investments despite the absence of federal and international consensus on climate policy to hedge risk, capture business opportunities, and gain a competitive edge.  The potential was summed up by George Biltz [7], Dow’s vice president for energy and climate, who stated that his company considers climate change to be the greatest business opportunity of the next 50 years.  And businesses’ ability to pursue these opportunities would be strengthened and accelerated with long-term, stable energy policies.

Company leaders highlighted a wide range of low-carbon innovations—technologies, products, or services that emit fewer GHG emissions (in their manufacture and/or use) than competing options.  Some solutions highlighted at the conference include:

• Coca-Cola’s PlantBottle [8], the first-ever recyclable PET beverage bottle made partially from plants;
• NRG’s eVgo [9] has created an innovative approach to overcoming consumer concerns about the range and price of electric vehicles by providing access to a network of charging stations through fixed-cost monthly subscriptions; 
• According to UPS CFO Kurt Kuehn, UPS has leveraged the power of IT, developing time status software [10] that narrows delivery time windows and allows customers to change where a package is delivered, to save fuel by reducing repeated delivery attempts.
• Other companies, like Citi [11] and Johnson Controls [12], are working on innovative financing mechanisms to help deploy existing energy efficiency and renewable generation technologies more broadly.  Johnson Controls’ Institute for Building Efficiency [13] estimates that a 22 percent energy savings in commercial buildings could be cost-effectively achieved by 2020, creating an additional $12 billion market for building retrofits and technologies. 
   

Policy can help drive innovation.  As noted by Jake Jones, Executive Director, External Affairs & Public Policy at Daimler [14], regulations are driving fuel efficiency innovation in passenger vehicles.  Dow’s George Biltz stated that government support works—without incentives, it’s unlikely that Dow would have manufactured its PowerHouse solar shingles [15] in the United States.  Without regulatory certainty in many sectors, companies must find their own path to realizing low-carbon technologies’ market potential. Several key insights into these efforts emerged during the conference:

1. Despite the absence of climate policy in the United States, there is significant business opportunity to capture globally.  There was a strong sense among speakers that companies not in the markets where low-carbon innovation is happening will be left behind.
   • Mark Vachon, leader of GE [16]’s $5 billion ecomagination [17] initiative, described his focus on expansion into countries with growing markets and government support for low-carbon innovations such as Australia, China, Brazil and India.
   • For the past three years, Melisa Johns, Managing Director of Joint Technology Development, and her colleagues at Duke Energy [18] have been working in China to stay ahead of the curve in clean energy technologies, where the feasibility studies are cheaper, the deployment pace faster, and government funding and research more available. 

2. In many cases, companies are finding that they have to rethink how they do business to capture opportunities.  “Short-termists” might see change as destructive, but long-term innovators see that these strategies pay off.  When undertaking the Empire State Building retrofit [19] through a multi-year, comprehensive service involving multiple partners, Johnson Controls found the company making recommendations for the building system that in some cases meant losing the sale of a new piece of technology, such as a chiller, but maximizing the value of the overall retrofit for both the client and the company.  Such comprehensive, service-led offerings can also be a way to drive sales of hardware products. 
    
3. Companies are also leveraging core competencies in novel ways.  As explained by HP’s Vice President for Sustainability, Engelina Jaspers, in March 2011 the company introduced a new sustainable energy management practice [20] based on HP’s own success with internal energy management.  According to Paul Narog, 3M’s Manager for Environmental Operations, sharing patents across business divisions and internal TechForums help technical and science employees cross-pollinate ideas.  Moreover, to reduce the risks associated with adopting new technologies, Waste Management [21], UPS, Lockheed Martin [22] and others are using their own operations as “test-beds” for new solutions, making it more likely that customers will adopt them.  AREVA Solar [23] is bringing the parent company’s technology and expertise in electric power generation to solar steam generators.

4. Bringing industry partners together is helping companies to tap into new applications and markets for their innovations.  Bayer’s EcoCommercial Building Initiative [24] brings together what Bayer’s corporate sustainability community council chair, Bob Kumpf calls “a cluster in the value chain”—a network of interdisciplinary partners, many of whom typically make decisions unilaterally—to help customers solve energy efficiency and technology problems.  Aluminum manufacturer Alcoa [25] bought a stake in one of the nation’s biggest collectors of e-waste, a non-traditional way of mitigating the need to generate new aluminum for use in consumer electronics.

5. Identifying and analyzing ‘megatrends’ and taking action to advance innovation are valuable for making the business case.  Without accounting for long-term changes in market forces, it is difficult to justify the necessarily long-term investments in slowly developing low-carbon technologies.  Moreover, some of the most important innovations occur after a solution has been put into practice: George Biltz noted that it is mostly the fourth and fifth generation technologies that ultimately make a big difference.  In this multigenerational framework, companies recognize that it is important to develop not just products but the markets that support them.

These and other strategies discussed at the conference are making companies more resilient and able to succeed in a low-carbon economy.  We heard many businesses say they believe they need to be prepared: at some point, the pendulum in Washington will shift in favor of climate and energy policy, and these businesses plan to be ready when it does.

Meg Crawford is a Markets & Business Strategy Fellow at C2ES.