Looking out the window of an airplane, streetlights automatically reveal the design and character of a city. They are a kind of municipal fingerprint, and no two are alike.

What they do have in common is that they all run on electricity – and municipalities that pay the bills every year certainly don’t take that for granted. There are an estimated 35 million streetlights across Canada and the United States and together they consume enough electricity to power four million homes.

Los Angeles, for example, had been paying more than $20 million for its fleet of 220,000 streetlights. As part of a massive cost-cutting effort, it decided in 2009 to launch what was then the largest LED streetlight project in North America.

So far, the City of Angels has converted about 140,000 of those streetlights to LED units. The move has paid off. Energy use dropped 63 per cent and the municipality was able to cut its bill by $7 million a year. That excludes the $2.5 million annually it now avoids in maintenance costs, reflecting the fact that LED lamps rarely fail and last three to four times longer than sodium lamps typically used today.

“The product is now mature, it works, it lasts, people are happy with it, and prices have come down,” said Philip Jessup, director of LightSavers Canada, an initiative of the Canadian Urban Institute in Toronto.

Despite this win-win story, Jessup explained, the vast majority of municipalities still haven’t committed to the switch. In the U.S., an estimated 10 to 13 per cent of streetlights are now using LED lamps. Canada, by comparison, is lagging at just under 5 per cent.

This poses a challenge for LightSavers, which wants to see one million or 37 per cent of all streetlights in Canada switched over to LED by 2016. It has found that municipalities, while they generally “get” the benefits of LED streetlights, remain reluctant to commit the upfront capital required to do the retrofits – particularly when most city budgets these days are strained.

In search of strategies to break through this barrier, LightSavers and Corporate Knights convened a small group of municipal, financial, energy and technology experts to explore alternative financing options that might accelerate the deployment of LED street lighting without weighing down municipal balance sheets.

Kerry Wilson, director of commercial strategies for RealTerm Energy, an energy services company, or ESCO, said acceptance of and interest in LED streetlights has shifted considerably over the past three years as municipalities become more educated about the technology and its potential benefits.

As an ESCO, RealTerm offers to pay for and install LED street lighting as part of an energy performance contract. The municipality doesn’t have to worry about providing capital for the project upfront, such as through debt financing. Instead, it makes regular payments to RealTerm based on its energy savings.

Wilson said RealTerm already has 17 performance contracts in place and more than 60 proposals under consideration. “Once you start getting the ball rolling, it catches on quickly.”

The ESCO model, while not new as it applies to energy-efficiency retrofits in buildings, is a fairly recent development for streetlight deployment. The size of the opportunity, however, is attracting interest from non-traditional ESCOs such as lighting giant Philips and from traditional ESCOs such as Johnson Controls, which has some performance contracts in the U.S. and is slowly trying to break into the Canadian market. Many cities remain cautious and talks are slower than anticipated, but Brian Del Vecchio, senior account executive at Johnson Controls, said a positive sign is that negotiations are getting more “rigorous” and “detailed.”

Why the municipal skittishness?

“The perception is that it’s still a cowboy market out there,” said Cynthia Robertson, a principal at Parkridge Consulting. In other words, the relative newness of LED street lamps raises questions about quality control, speed of technology advancement and a lack of market standards.

Will LED lamps for streetlights perform much better five years from now, or be replaced by new technology, or drop considerably in price? Which LED lamp suppliers can be trusted? For some city managers, it may be safer to play wait-and-see.

“If you’re a streetlight manager and your city street lighting already works, why change anything?” said Jessup, playing devil’s advocate during the discussion.

And what about other municipal stakeholders – city treasurers, chief operating officers, the local utility and city councillors? Each represents a different interest or need in the community. The challenge is getting them all on the same page. The good news is that it’s on the radar. In January, the U.S. Conference of Mayors released a survey of 300 mayors, 82 per cent of whom said switching city lighting to LED technology was a high priority.

Not surprisingly, 84 per cent cited budget constraints as the biggest barrier.

It doesn’t have to be.

The post Street smarts appeared first on Corporate Knights.

This January, the Council for Clean Capitalism initiated talks with the City of Toronto and the Toronto Atmospheric Fund to examine how Toronto could move forward to address this critical information gap.

This culminated in the Toronto Parks & Environment Committee adopting Item PE26.3 “Energy Reporting Requirement for Large Commercial and Multi-Residential Buildings” on March 3, which will task city staff to report to City Council by March 2015 with a proposed bylaw and implementation plan for establishing a mandatory ‘Annual Energy and Water Utilization Reporting Requirement’ for large buildings.

Based on the Council for Clean Capitalism’s analysis of successful benchmarking requirements implemented across a multitude of U.S. jurisdictions, including New York City, San Francisco, and California State, there is a strong indication that well-designed building benchmarking requirements can help catalyze a number of economic and environmental benefits.

A more complete and standardized dataset for building energy performance will foster the integration of energy performance metrics into economic decision-making, opening the way for increased energy efficiency investments and related cost savings.

There is also an emerging pool of evidence showing that more energy efficient buildings have higher employee productivity, lower turnover, higher occupancy rates, and higher property values – 13 per cent higher, according to one major study. Likewise, the same study found that rents are typically 8 per cent higher in LEED-certified and Energy Star-rated buildings.

Over 50 jurisdictions across the United States and Europe have set a clear precedent for the efficacy of benchmarking in generating savings and creating jobs – Toronto can learn and improve on these initiatives.

The Council for Clean Capitalism looks forward to contributing to the development and implementation of this requirement for the long-term benefit of Toronto citizens.

For information about the Council for Clean Capitalism, visit cleancapitalism.com

The post Energy reporting helps cities appeared first on Corporate Knights.

The post Rewarding sustainable wealth appeared first on Corporate Knights.

Looking at greenhouse gas emissions, our Martian would note that the epicentre of Canada’s fossil fuel extraction, the oil sands, are responsible for about 50 million tonnes of annual greenhouse gas emissions, or about 1/20th the 2 billion tonnes that U.S. coal-fired electricity plants belch out each year. In the newspapers, he would notice the energy conversation between business, government and civil society is near monopolized by the narrow question of pipeline or no pipeline: how much the economy needs more oil pipelines and how bad this would be for the environment. A pipeline would abet the carbon-intensive oil sands that require loads of natural gas to steam out the oil, even though tapping a tiny fraction of the 11,000 MW of hydro potential lying fallow in northern Alberta could make the in situ oil sands close to a zero-carbon operation.

At this point the Martian might be perplexed. Given that Canada has economic clean electricity assets that far exceed its fossil fuel assets, why are the Canadians selling the Americans 28 times more of their oil needs than electricity needs?

The main part of the answer is that we have a lot more pipelines than power lines, so most of our best clean electricity assets are stranded from their potential customers.

But what if we found a way to make clean and conventional fossil energy work together to the benefit of the economy and the environment?

For example, imagine if Canada’s oil sands were powered by hydro power via the High Voltage Backbone Vision for Alberta that the ATCO Group is calling for. Instead of being among the dirtiest, it would be among the cleanest forms of oil – almost green from an extraction perspective.

Imagine if we devised energy corridors co-locating pipelines and superconductor electricity power lines that can fit in the same existing right-of-way, an idea the Electric Power Research Institute has commended for investigation. We also happen to have companies with prowess in power lines and pipelines, from Enbridge and TransCanada to Brookfield, as well as large pension and insurance funds with an appetite for big infrastructure plays.

Staring us in the face is this major economic opportunity to double energy exports with an enterprising, new clean-conventional energy export strategy that would also help to halve the greenhouse gas emissions from U.S. coal plants. So what is stopping us from building these double-barrelled “superpower” energy corridors?

One barrier is that we haven’t yet addressed the engineering question of how much clean electricity we actually have nationally. And assuming an optimally designed electricity grid, what would be our electricity export potential to U.S. on a province by province dollar basis? A public “Clean Energy Superpower” map undertaken by the National Energy Board depicting Canada’s wind, solar, tidal, pumped storage and geothermal potential would help delineate where to plan national-interest electricity grid corridors and would be catalytic for private sector power producers.

We also have to overcome the idea of electricity exports being some kind of zero-sum game between provinces. The convening power and leadership from the federal government could go a long way to helping Canadian provinces see how little our current slices of the U.S. electricity market are, and the potential for an electricity export pie that is 10 times bigger than today. Instead of fighting over crumbs, a pan-Canadian grid, co-located with pipeline energy corridors, with multiple north-south chutes is a means to enhancing access to U.S. electricity markets.

An abundance of red tape and the high cost of capital are two other factors that have held up the expansion of power lines. The lemonade from the lemon of recent changes to federal environmental regulations is that there is now much less red tape in the way of building major infrastructure projects.

On the capital side, the current Prime Minister has already made a substantial contribution by providing a loan guarantee to Newfoundland’s government to support the construction of the $6.2 billion Lower Churchill hydroelectric project and underwater power cable to Nova Scotia as a gateway to U.S. markets, which will save the province $1 billion in borrowing costs. He said similar financial support will be considered for projects that meet three criteria: be of “national or regional importance, have economic and financial merit and significantly reduce greenhouse gas emissions.”

A map to inspire, a transmission runway cleared of red tape, and a little credit enhancement could help us marry up clean and conventional energy and deliver the prize of economic prosperity for generations to come. Who says oil and water can’t mix?

The post Power lines and pipelines appeared first on Corporate Knights.

The bond markets have grown into a $100 trillion oxygen chamber for finance ministries and businesses. Standing at the gates are Standard & Poor’s Ratings Services, Moody’s Investors Service and Fitch Ratings – the most powerful oligopoly in the world. The Big 3 have a 95 per cent market share of the global credit ratings market, which gives them the power to deem who breathes in the capital markets and who suffocates.

The rating agencies serve a critical function labelling which debt is safe, but they are only as good as their proprietary models. Sometimes the models miss important factors, like when they slapped AAA ratings on financial products based on mortgages extended to NINJAs (folks with No Income, No Job and no Assets).

When the NINJAs’ throwing stars popped the housing bubble, AAA turned into junk overnight, sending the global economy reeling into the Great Recession. The U.S. government’s Financial Crisis Inquiry Commission reported that “the mortgage-related securities at the heart of the crisis could not have been marketed and sold without [the rating agencies’] seal of approval.”

From the time of tulip mania in the 17th century, bubbles have been a reality of capitalism. The question is, what will the next asset bubble be and how can we begin to deflate it? The conventional wisdom chalks the European sovereign debt crisis up to there being more Porsches in Greece than taxpayers declaring 50,000 euro incomes. But the reality is more ominous.

There are strong indications that we may be brushing up against the mother of all asset bubbles: an economic model of growth premised on short-changing Mother Nature. Popping this asset bubble intentionally amounts to “a global suicide pact” in the words of UN Secretary-General Ban Ki-moon.

The four countries at the heart of the eurozone crisis – Greece, Italy, Portugal and Spain – have something in common. They not only had their sovereign debt harshly downgraded, but are also among the largest ecological debtors in the world, running the green into red at twice the eurozone average, according to the Global Footprint Network.

Shedding further light on how nature is creeping onto balance sheets, the UNEP-backed Environmental Risk Integration in Sovereign Credit Analysis (E-RISC) has found that resource price swings of 10 per cent can push trade deficits up by between 0.2 and 0.5 per cent of GDP.

Treating the environment as an off-balance sheet item has always been a ticking time bomb–in the long term. After the Copenhagen climate talks collapsed, the time horizon was pushed even further into irrelevance by the rating agencies. While we were waiting for government to bring nature onto balance sheets, the markets beat them to the punch, thrusting us into an era of rising and volatile resource prices.

This is difficult to digest for anyone who lived through a 20th century that delivered rising living standards and a population soaring from 1.6 billion to 6 billion, while prices for the 33 most important commodities declined by 70 per cent. However, in the past decade these declines were completely erased or reversed due to demand from Asia and other emerging markets. Real commodity prices have risen by 147 per cent since the turn of the century. With 3 billion more middle class consumers expected to join us by 2030, we are in the midst of a revolution that places resources ahead of capital and labour at the heart of public policy and business strategy, according to a recent McKinsey report.

Amidst this resource revolution, rating agencies risk being caught flat-footed once again. The UN Secretary-General’s High-Level Panel on Global Sustainability noted that rating agencies largely ignore environmental issues and “do not take account of likely changes in resource prices.” The panel suggested that if ratings were sensitized to such matters, there would be a more urgent financial interest in mitigating negative impacts and leveraging positive ones.

At a time of intense scrutiny by regulators and their large ‘universal owner’ shareholders, rating agencies have a chance to take a proactive approach. Just as the Big 3 have shown leadership in the past by taking into account unfunded pension liabilities and longer-term demographic risks to fiscal health, there is now an opportunity to show leadership by integrating natural resource factors into rating models.

The E-RISC methodology integrates 20 indicators to assess natural resource-related risks to sovereign creditworthiness, including most saliently: change in trade balance from a 10 per cent change in resource prices expressed as a percentage of GDP; ratio of the country’s ecological footprint over its biocapacity; and change in trade balance from diminishing productivity due to overuse of productive land and marine areas.

Integrating these metrics into ratings models as a starting point would be good for the global economy, good for the rating agencies, and good for the planet.

The alternative is to keep ignoring Mother Nature’s signs, which are increasingly less discrete if the massive flooding of Standard & Poor’s executive offices during Superstorm Sandy is any indication.

The post Risky resources appeared first on Corporate Knights.

It’s the belief of this publication that the power of markets can be harnessed to shape and grow an economy that is grounded in a golden rule: Business and society must succeed together. This is the path to sustaining prosperity where it exists, and achieving it where it doesn’t.

We have not, for the most part, been on this path. To continue on our current route is to erase what progress has been made over the last century and throw the global economy into irreversible turmoil.

The challenges ahead are immense, particularly around resource scarcity. A 140-page report recently released by the National Intelligence Council, which reflects analysis from 16 U.S. intelligence agencies, cited food, water and energy shortages – complicated by our changing climate – as a “megatrend” that will contribute to radical economic and political changes by 2030.

A growing global population – and rising middle class in the developing world – has led to more consumption of food than production over seven of the last eight years, while global water demand is expected to exceed sustainable supplies by 40 per cent within the next 18 years, according to the report.

“We are at a critical juncture in human history,” said Council chairman Christopher Kojm, adding that decision makers must be encouraged to “think and plan for the long term” to avoid negative outcomes and give positive ones a better chance to take root.

“We are not necessarily headed into a world of scarcities, but policymakers and their private-sector partners will need to be proactive to avoid such a future,” the report says. It comes down to living within our means.

There is a similar urgency around our growing climate challenge. World Bank president Jim Yong Kim declared in November that the global economy is on a “devastating” course. “The lack of action on climate change not only risks putting prosperity out of reach of millions of people in the developing world, it threatens to roll back decades of sustainable development,” he warned.

Governments are not approaching these challenges from a position of strength. As of year-end 2012, the world’s nations were struggling under the weight of nearly $50 trillion in public debt, according to The Economist’s “global debt clock.” At the same time, more than $35 trillion in public infrastructure projects will be necessary over the coming two decades, with a tremendous opportunity – and need – to address water, waste, energy and transportation inefficiencies. There will be great temptation to cut corners.

In the United States, talk of a “fiscal cliff” has overshadowed the reality of the global climate cliff. With the widest income gap in more than 40 years, a two-decade-high poverty rate and the health care demands of an aging population, America has put short-term economic fixes ahead of the environmental and social gains that would assure the well-being of current and future generations.

As Scottish economist Adam Smith wrote in The Wealth of Nations, published in 1776, “No society can surely be flourishing and happy of which by far the greater part of the numbers are poor and miserable.”

To date, we’ve relied on indicators such as gross domestic product (GDP) to measure wealth, but these hide a much bigger story. Growth in GDP may imply the well-being of a country’s citizens, but it doesn’t truly capture it.

“We have forced ourselves to believe that we can grow ourselves out of the multiple crises we face today,” according to the Inclusive Wealth Report 2012, jointly produced by the United Nations Environment Programme and International Human Dimensions Programme. But, it adds, “Social and ecological factors are also important determinants of well-being, and in some cases, are direct constituents of well-being.”

In other words, education, health, clean air and water, biodiversity and other factors are an integral part of what it means to be truly prosperous. Indeed, a country’s comprehensive wealth per capita can drop even while GDP per capita rises.

What constitutes this inclusive, comprehensive wealth? In addition to financial capital, there is produced capital, such as roads, railroad tracks, electrical grids and machines; human capital, such as improvements to health, education and skills; social capital, representing the health and robustness of our institutions; and natural capital, which covers “ecosystem services” such as forests, fossil fuel reserves, minerals and land.

On balance, when we enhance our various forms of capital on a net basis, we enhance our overall wealth. This is the essence of clean capitalism.

The inclusive-wealth report analysed 20 countries representing 73 per cent of global GDP. It found that overall wealth is falling, despite rising GDP, in six nations – South Africa, Colombia, Nigeria, Russia, Saudi Arabia and Venezuela. In all other countries, with the exception of France and Germany, the average growth rate of inclusive wealth lags the rate of GDP growth.

Alarmingly, 17 out of 20 countries show an unsustainable decline in natural capital per capita over the past two decades, offset partially by increases in human capital. As University of Cambridge economics professor Partha Dasgupta wrote, “When natural capital is included in economic statistics, the recent economic history of nations looks very different from what we are led to believe.”

The Path Forward

To improve our collective well-being in a way that is sustainable over the long term,Corporate Knights believes it is important to make the most efficient use of all our productive resources. That means doing a better job of counting all forms of capital and removing barriers to their optimal allocation.

Where market failures are holding us back, we should fix them. Where others have tried before us, we should learn from them. To guard against unintended consequences, we should plan for evidence-based interventions. As U.S. presidents, both Republican and Democratic, have said many times throughout history: “If not us, who? If not now, when?”

Market failures include, but are not limited to: unpriced externalities, such as carbon pollution and aspects of water delivery and treatment, resulting in goods and services that are not fully valued; lack of timely information on products and national/corporate balance sheets, which makes it difficult for consumers, taxpayers and investors to make informed decisions that affect their well-being; under-provision of public goods, such as electricity transmission infrastructure and high-speed trains, which would enable a faster transition to renewable energy and clean transportation; and institutional inertia, such as the tendency of corporate and financial executives to do what they’ve always done, rather than embrace new opportunities that may be both profitable and more sustainable.

There are four vectors through which targeted policy intervention can largely correct these market failures to unleash the full potential of our planet-based economy: information, incentives, infrastructure and investment.

Information

The release of greenhouse gases and other pollutants through economic activity has an impact on our stock of natural capital – soil, air, water, flora and fauna. But that impact, or externality, is not fully priced into the goods and services we produce and consume.

British economist Arthur Pigou articulated this dilemma more than 90 years ago, yet our natural and social capital are still largely unaccounted for, making it difficult to develop policies aimed at preserving them. We can’t manage what we don’t measure. We need more information to help us live within our means.

This was recognized in 2012 by dozens of financial institutions that signed the Natural Capital Declaration, an initiative of the United Nations Environment Programme aimed at getting governments and business to value natural capital.

The declaration asks that government require companies to disclose their dependence and impact on natural capital “through transparent qualitative and quantitative reporting,” and require its own public spending and procurement to report and account for natural capital.

Once we account for natural capital, we can also make it easier for businesses and consumers to make informed purchasing decisions through better labelling of everything from grocery items to buildings.

Incentives

With natural capital properly inventoried and integrated into the balance sheets of nations and businesses, it becomes more feasible to develop policies that reward responsible market behaviour, such as energy conservation, and discourage irresponsible and inefficient use of our various natural resources.

Carbon pricing is one obvious and much-talked-about example, but others include: fast-track permits for builders of green buildings; road congestion charges to discourage driving and encourage use of public transit, cycling and other low-carbon options; a tax code that prioritizes investment in energy and water efficiency technologies, through mechanisms such as accelerated depreciation; and temporary, targeted subsidies – such as feed-in tariffs – for promising forms of renewable energy.

“By channelling the forces of the marketplace into environmental programs, economic-incentive mechanisms can make the everyday economic decisions of individuals, businesses, and government work effectively for the environment,” wrote Harvard University business professor Robert Stavins in 1990, outlining an approach whose time has come.

In addition to creating supportive policies, there’s also room to eliminate outdated policies that have accelerated our erosion of natural capital. Subsidies for the fossil fuel industry, for example, have long outlived their original purpose and should be phased out to level the playing field for more sustainable forms of energy.

Infrastructure

The decisions we make today on infrastructure, as long-lived public assets, lock us into a future that could prove protective or erosive to our natural and human capital. Coal-fired power plants have provided cheap electricity to industry, but at what cost to environmental and human health?

On the other hand, infrastructure investments that enable the development of renewable power and support public transportation and healthy lifestyles have tremendous potential to boost our inclusive wealth. This is particularly true if such projects, in addition to meeting our economic and social needs, reduce pollution and help with climate change mitigation and adaptation.

Both public- and private-sector investors, such as pension funds, must weigh every infrastructure project through an environmental, social and governance lens, with a view to the long-term impacts. Government’s role is to cut the red tape for what should be high-priority projects, while also working with the private sector to come up with creative financing solutions that will attract the necessary financial capital.

Investment

The difficulty of raising financial capital is one of the biggest barriers to a clean capitalism economy. More than $200 trillion in private-sector capital flows like water through the path of least resistance. This means industries with established track records, technologies, funding mechanisms, and proven investment returns tend to be favoured by the pension funds and investment houses that control the purse strings. Unfortunately, the path of least resistance tends to reinforce a world based on fossil fuels and the “dirty” infrastructure it relies on.

Even signatories to the United Nations’ Principles for Responsible Investment are having a difficult time weaning themselves from “unsustainable” investments. A recent study from the US SIF, which represents a wide range of investors, found that only 11 per cent of all investments under professional management in the United States qualify as “sustainable.” That works out to $3.74 trillion out of $33.3 trillion.

But much can be done to optimize the flow of financial capital to projects that take a balanced approach to enhancing our natural, human and produced capital. Governments can provide partial loan guarantees to “green” infrastructure projects or create public procurement programs that double as demonstration projects for clean technologies, both aimed at lowering private-sector risks.

The creation of government-backed green or “climate” bonds that are dedicated to building sustainable infrastructure is another promising option that can direct more financial capital to the kinds of projects that will enhance the well-being of citizens for generations to come.

One promising tool is the Property Assessed Clean Energy, or PACE, bond, which helps fund energy-efficiency retrofits and small-scale installation of renewables for homes and businesses. A municipality issues bonds and uses the money to extend low-interest loans to property owners, who can pay back the loan through their property taxes with the energy savings.

All a jurisdiction needs to do is amend legislation to empower municipalities to develop PACE programs, which ease the upfront cost burden on property owners looking to lower their environmental footprint. Several U.S. states and Canadian provinces have already made such changes, paving the way for the rest of the continent to follow.

Through a combination of improved information, carefully designed incentives, long-term infrastructure planning and investment optimization, Corporate Knights firmly believes that market failures can be corrected and the clean capitalism economy realized.

Overcoming these barriers will make us more resilient to the uncertain future that lies ahead, while at the same time securing our prosperity over the long term.

The post Blueprint for clean capitalism appeared first on Corporate Knights.

A prolific writer – he has written more than 150 articles and 15 books – Mintzberg is considered one fo the most thoughtful, provocative and critical thinkers on management. And, from an economics perspective, he asserts that our global economies are out of balance and tilted too much in favour of the private sector. The result is an unsustainable path gripped by political paralysis. The answer? Mintzberg calls for a radical renewal that brings the public, private and plural sectors – the latter representing non-governmental organizations and member-owned businesses with each other. This, he argues, will lead to responsible business, respected government and robust, interactive communities. Corporate Knights first interviewed Mintzberg in 2009. Below is an excerpt from a more recent chat that took place in the fall:

CK: When you say you believe in something because it’s impossible, what do you mean by that? What inspires that?

MINTZBERG: All change seems impossible, but once accomplished it’s the state you’re no longer in that seems impossible. You can look back and say, how did we ever tolerate that? How did the Americans ever tolerate an electoral college and how could they have tolerated the process by which a minority of voters can put someone in office?

CK: You’re working on a new book, to be released this year, that hits on topics such as balancing society, radical renewal, and moving beyond the left, right and centre. Can you give us some insights into what your core thinking is with this new work?

MINTZBERG: What I’m arguing is that since 1989, after the fall of the communist regime, the assumption was that capitalism had triumphed. I think that was a mistake. I think that balance had triumphed in the sense that we (the western world) were roughly in balance and that the eastern European countries were totally out of balance on the side of the public sector. Because we misinterpreted that, we are now swinging out of balance in the private sector – that is, cutting regulation, reducing taxes on the wealthy, the amount of tax increases in regressive taxation like sales tax. So we’ve swung out of balance and what I’m saying is a balanced society leads to responsible businesses, respected governments and robust communities, or what I call the plural sector.

CK: What is the role of large corporations in this rebalancing?

MINTZBERG: I don’t think companies are going to solve this problem. Responsible corporations will not make up for irresponsible corporations. There are too many irresponsible corporations. I applaud the responsible corporations but green retailing is not going to make up for greedy drilling. So social responsibility contributes and it’s important, but it’s not going to be the starting point or the main point. On the other hand, I think it comes in once plural-sector organizations, through social initiatives, show the way. So what you have today are thousands of fascinating social initiatives all over the world based on microfinancing. These didn’t confront banking, they went around it. They created a way for people who couldn’t get loans to get loans. That’s an example of social initiative. Once that starts happening – and you see this with microfinancing – then the regular banks can say maybe we can do that, too. You get responsible reforms.

CK: I guess this is a bit of a loaded question, but would you say financial capitalism has been more parasitic than symbiotic with respect to the planet and society?

MINTZBERG: Unbalanced, probably yes. I’m not sure the word parasitic is the right word, but yes. My vocabulary is to compare exploring corporations with exploiting corporations. Exploiting and parasitic mean the same thing. Apple would be a classic example of an exploring corporation that contributes enormously and in fascinating ways and does extremely well, although it also does its share of exploiting in certain respects. But there are too many exploiting corporations.

CK: There are some global initiatives, led by big corporations, which are aiming for the highest common denominator policies – i.e., policy changes that lead to market rewards for responsible leaders and increase market costs for the laggards. What do you think of this approach?

MINTZBERG: It sounds fine. But there are a couple of things. One is that the smaller companies behaving responsibly may not get the publicity that the bigger companies would get, so they may be at a disadvantage in that perspective. The other thing is that you can build up goodwill and blow it in an instant with a new mercenary chief executive who starts exploiting. Delta Air Lines was revered years ago for the treatment of their employees and look what happened? The trouble with working for a company today is that no matter how good it is, like Johnson & Johnson, you don’t know if some new mercenary is going to take over and just kill it in a year or two. It happens so often these days with executive bonuses and stock market forces.

CK: This seems a pretty good reason to improve the rules of the game – to rebalance, as you might say.

MINTZBERG: Right now it seems to me that it pays to be good. The trouble is that it also pays to be bad. You can make a lot of money being bad, and by bad I mean the letter of the law. Bear in mind, too, the company may be destroyed in the long run by irresponsible behaviour. But the chief executives are walking out with massive bonuses before that happens. So it pays the chief executive to be bad, but it doesn’t pay the corporation in the long run.

The post Getting back in balance appeared first on Corporate Knights.

Even the most hard-nosed and sceptical oil executive about the future of fossil fuels and he (sadly, it’s usually a “he”) will admit the world can’t run on oil, natural gas and coal forever and that the transition to something more sustainable is inevitable.

The question isn’t if fossil fuels will ever lose their dominant status in the world’s energy mix. The question is, when?

“I would guess fossil fuels will be at less than 50 per cent by 2050,” said David Keith, a physics professor at Harvard University’s School of Engineering and Applied Sciences.

“I’d say 50 to 60 per cent fossil fuels by 2050,” said Michael Liebreich, chief executive of Bloomberg New Energy Finance and a member of the United Nations’ Advisory Group on Energy and Climate Change.

And so began a wide-ranging discussion, orchestrated by Corporate Knights, between two of the brightest minds on the topics of energy and climate. Specifically, we asked Keith and Liebreich to give us their best educated guesses to the double-barreled question: When will fossil fuels cease to dominate, and what is the path that will get us there? The International Energy Agency expects that by 2035 fossil fuels will still represent 75 per cent of global primary energy consumption, down only six percentage points from where they are today. That’s based on a scenario in which recent government policy commitments are implemented in a “cautious” manner. Even so, it will require a global investment of $38 trillion in energy-supply infrastructure over the next 25 years.

It’s a modest goal that, for some, may still be too ambitious. After all, the agency expects surging global demand for coal over the next five years to quench the thirst for energy in non-developed countries, particularly China. At the same time, recent climate talks in Durban, South Africa, while being trumpeted as progress from some corners, achieved little more than further delay.

But much can change over 25 years, and certainly by 2050 the world could be a very different place. Subsidies from fossil fuels could be phased out rapidly. Carbon pricing schemes, such as the carbon tax being introduced in Australia, could begin to proliferate.

Capital markets could also become more creative in financing renewable-energy deployment, and the world’s largest corporations could move aggressively to embrace resource efficiency as a means to greater global competitiveness. Of course, there could even be breakthroughs in technology – so-called black swans – that set us on a new course and bust through systemic bottlenecks.

Liebreich, who last year produced a short video on the transition to a low-carbon economy called “First they ignore you,” isn’t one to wait for black swans to save the day. He’s of the view that we can make – and are making – significant progress deploying the technologies we have today, starting with a massive push for energy efficiency in buildings, transportation and industry.

“I’m pretty bullish on what we’re achieving,” Liebreich told Keith. “In peacetime, what we’re experiencing is about as fast a shift as you can get, so I’m more optimistic than pessimistic.”

Solar PV technology, for example, is already close to grid parity with conventional sources of power generation, including coal-fired power, in some regions of the world. It’s a claim recently backed up by peer-reviewed analysis out of Queen’s University in Kingston, Ontario.

Meanwhile, installation of solar PV systems is expected to nearly double to 32.6 gigawatts by 2013 from 18.6 gigawatts in 2010, according to Bloomberg New Energy Finance. Manufacturing capacity worldwide has quadrupled since 2008.

The way Liebreich sees it, deployment of clean energy will begin to significantly accelerate by 2030, to the point where the electricity mix will be 50 per cent renewable by 2050. He admits, however, that fossil fuels will still dominate transportation at that time.

What will get us there? A combination of everything and anything, he says, including geothermal power, mini-hydro, energy from biomass, and widespread deployment of wind and solar.

But technology is only part of the answer, he added. The point will soon come where we’ll have to start adding up the carbon contents of assets that sit on the balance sheets of the world’s corporations. There are enormous “sub-prime fossil assets” that one day will be worth nothing, and eventually the private sector, including the big pension funds, will wake up to the reality, said Liebreich. “A lot of these externalities not currently priced will over time come into the picture.”

He also held out hope that the global citizenry will become more engaged in the issue of climate change, a “game changer” that, even if it didn’t materialize for a decade or two, could significantly shift the balance away from fossil fuels and toward clean energy – the same way smoking went from cool to uncool. “This problem we have will get solved,” Liebreich insisted. “We are on track.”

Keith, despite predicting fossil fuels would contribute less than half of the world’s primary energy by 2050 – more ambitious than Liebreich’s guesstimate – wasn’t as bullish or confident on how it would all unfold. Indeed, one caveat for his prediction, what he called “the big variable,” is that governments, the public and the private sector had to get truly serious about climate policy.

Generally agreeing with Liebreich that we have many tools at our disposal today to start fixing the problem, Keith argued that we need to be more discriminating with which technologies get supported. Those that offer the best balance of low cost and high impact should get the most attention, and even then, their limitations have to be recognized, he said.

“It’s important to be realistic about how well things scale,” said Keith, demonstrating the kind of healthy scepticism and pragmatism that has endeared him to multibillionaire Bill Gates, who for the past few years has counted on the Harvard professor as one of his trusted energy advisors.

For example, Keith supports the use of wind power, “but only until it bumps up against its environmental limits.” One concern is that too much harnessed wind power could potentially alter our local and global climate in unexpected ways by changing wind patterns and the amount of moisture and heat transported by winds.

Keith also has a less favourable view of technologies that have a large land footprint. “Wind power uses a lot of land by many measures,” he said, adding that geothermal, mini-hydro and biomass energy also have a massive physical footprint when one considers the thousands of terawatt-hours that are needed. On the other hand, Keith singled out solar and nuclear technologies as most capable of scaling to the levels required for a meaningful global impact.

What gives him optimism? Like Liebreich, Keith is convinced there will come a time when humanity demands the kind of changes that are needed, at which point the transition will move much faster – a kind of Arab Spring for climate action. He also points to the Chinese and their competitive embrace of clean energy as a potential agent for global change. “Something is happening there that gives hope,” he said.

Just in case, Keith is also open to geo-engineering as a last-ditch effort to salvage a liveable climate. He has even founded his own company, Calgary-based Carbon Engineering, to work on an industrial-scale technology that could one day capture carbon dioxide from the ambient air. Gates is one of its angel investors.

And we may have to resort to such efforts. Both Keith and Liebreich agreed that no matter what we do going forward, the amount of carbon dioxide in the atmosphere will go past 500 parts per millions (ppm). Today, we are at about 390 ppm, and it’s generally accepted that at 450 ppm, average global temperatures will increase by 2 degrees C. At 500 ppm, it jumps by 4 degrees C. Remarked Liebreich: “Will there be damage? Of course there will be.”

Both men also strongly agreed that the UN-led climate talks that have dragged on for 16 years are doing more harm than good. Better to take a more focused approach, with the world’s top emitters hammering out their own emissions-reduction treaties while carrying on separate negotiations aimed at helping poor nations adapt.

“The idea that we’re going to get a solution through the UNFCCC (UN Framework Convention on Climate Change) process is a joke,” said Keith. “The sooner it collapses the better.”

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Conventional environmental wisdom holds that Cheney’s task force, largely informed by secret meetings with fossil fuel executives, was simply a mechanism which “turned coal and oil company wish lists directly into national policy,” as Sharon Buccino, senior attorney at the Natural Resources Defense Council, once put it.

While it is certainly true that Cheney’s trademark domestic legislation legacy is marinated in oil, he also deserves credit for his clear-minded diagnosis of the biggest barrier to bringing more energy security to the United States: an interconnected national energy grid.

Inadvertently, this hard-headed solution, meant originally to empower his dirty-energy allies, may turn out to be the key catalyst for an American green energy grid in the 21st century. There is a widespread consensus among green energy advocates — from former U.S. vice-president Al Gore to NASA scientist James Hansen — that the main thing holding back a rapid transition to abundant low-carbon electricity and, by extension, low-carbon electrified transport, is the inability to get energy from where it blows (up from Texas through the Dakotas) and shines (the deserts of the Southwest) to where people live and drive.

The Cheney-led task force identified the “antiquated and inadequate transmission grid” as a key inhibitor to getting more reliable, secure and affordable electricity to the markets that need it most. They traced the root cause back to an outdated federal law from 1935. This law assigned responsibility for siting transmission lines to states rather than the federal government. This was in stark contrast to the siting of other interstate facilities, such as natural gas pipelines, oil pipelines, railroads and interstate highways.

As the report notes, 80 years ago this made sense, as “transmission facilities were not interstate, and there was virtually no interstate commerce in electricity.” In typically blunt Cheney fashion, the report sums up: “Much has changed since 1935. The transmission system is the highway for interstate commerce in electricity. Transmission constraints are ­resulting in higher prices for consumers and lower reliability. The siting process must be changed to reflect the interstate nature of the ­transmission system.”

The reason siting matters so much is that in today’s climate of NIMBYism (“not in my backyard”), it would be impossible to build the kind of $400-billion unified national smart grid that Gore called for in a New York Times editorial in 2008. There are too many different local actors who could effectively veto such an effort.

The solution to modernizing the balkanized U.S. electricity grid is simple, but highly controversial: trump state rights by giving the federal government the power to override local and state opposition to strategic power-grid corridors that are clearly in the national interest.

The legendary and sometimes contrarian venture capitalist Vinod Khosla maintains that there is more than enough private sector capital to build a national electricity grid, assuming the federal government provides right-of-way and eminent domain rights.

Never one to be accused of bashfulness, Cheney tackled the solution head on with the Energy Policy Act of 2005 in the form of a provision for “National Interest Electric Transmission Corridors.” The provision allows the federal government to override states in cases where interstate transmission facilities are held up for more than a year.

It remains to be seen how this provision will be built upon. Should it inadvertently open the way for a national electricity highway that unleashes America’s green energy potential, Cheney may, unintentionally, go down as one of the great green vice-presidents. This would place him in a similar category to a previous Republican, Ronald Reagan, who helped accelerate the demise of the Soviet Union and its subsequent economic collapse, causing annual greenhouse gas emissions to plunge by over a billion metric tons per year. This did more to pull back the throttle on climate change than any act to date.

Unlike Reagan’s green contribution, which was in response to an economic implosion, the happy green outcome in Cheney’s case could lead to an economic renaissance.

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Nothing about my priorities has changed. I still want an economy that is sustainable and just, but I have since internalized Einstein’s wisdom: insanity is doing the same thing over and over again and expecting different results.

That’s why I was a bit ticked last month at the eco-triumphalism surrounding President Barack Obama’s decision to deny the application for the construction of the Keystone XL pipeline, following a concerted campaign that included 12,000 protesters forming a human chain around the White House.

I recognize that temporarily delaying this highway for oil sands was the culmination of a great deal of hard work and campaigning by dozens of North America’s top environmental groups. Also, that it holds symbolic value for a movement that has been handed some savage defeats since the collapse of the Copenhagen climate talks.

But the math is really depressing, and the euphoria over such a small and likely Pyrrhic victory hurts more – it gets to the root of the increasing irrelevance of an eco-movement bent on tearing down small parts of the problem rather than building up big parts of the solution.

Even if we killed the oil sands, it would wipe out just 50 to 100 million tonnes of greenhouse gases per year at their projected height. No small beans, but with two billion tonnes of carbon pollution coming out of North American coal-fired power plants every year, it wouldn`t be even close to good enough.

So why are environmental groups – with the exception of the David Suzuki Foundation’s Trottier Energy Futures Project – spending so much time stopping this oil highway, and so little time starting the clean electricity highway that will enable Canadian green energy to replace American brown energy?

Canada is far more than just another petro-state. Canada’s annual oil exports to the U.S. currently total about $70 billion, or 17 per cent of U.S. oil consumption, while Canada has enough economic clean electricity generation potential (via hydro and wind with pumped storage) to meet the continent’s electricity needs many times over. However, Canada’s clean electricity exports to the U.S. currently total just $4 billion per year, or one per cent of U.S. electricity consumption.

Why are these numbers so far apart? The disparity is not due to a lack of U.S. hunger for clean electricity. The North American Electric Reliability Corporation (NERC) projects that over 260,000 megawatts of new variable power will be needed for the continent`s bulk power system in the next decade – with the vast majority being consumed in the United States. The big reason is that, in contrast to the extensive network of oil pipelines, there are almost no electricity pipelines to get the electrons to market.

There are several barriers to building a clean energy pan-Canadian highway with multiple north-south chutes, but the biggest one is red tape. New grid roll-outs are so bogged down in red tape that the timescales would test the patience of the pharaohs who used to build pyramids – whoever starts a project is unlikely to be alive by the time it comes to fruition.

The U.S. has already recognized this problem and moved to cut some of this red tape with the Energy Policy Act of 2005, which has a provision to invoke so-called National Interest Electric Transmission Corridors. Here’s how it works: the U.S. Department of Energy is mandated to conduct periodic studies on national electric transmission congestion and to designate National Interest Electric Transmission Corridors if deemed appropriate.

Under this law, the Federal Energy Regulatory Commission (FERC) can issue, in certain circumstances, permits for new transmission facilities within a designated national corridor. If an applicant has not received approval from a state regulatory body to site a proposed new transmission project within a year of application, FERC may consider whether to issue a permit and authorize construction of the project.

Invoking such transmission superhighways for Canada to maximize its clean electricity generation potential, with defined provisions that ensure affected local aboriginal peoples are provided a fair stake, makes a lot of sense. This would raise some constitutional and trade issues, but nothing that couldn’t be resolved by some smart lawyers, and smoothed over with some creative financial sweeteners (via access to partial loan guarantees). Such sweeteners would have to come at minimal cost to the treasury, especially in this deficit-challenged era.

The good news is that, for all his green foibles, we currently have a prime minister who seems to get it. In line with Sir John A. Macdonald’s bold vision to connect Canada with the national railway in the 19th century and the network of fossil fuel pipelines laid down in the 20th century, Stephen Harper is sympathetic to a staged pan-Canadian HVDC electricity highway. Such a power highway would unlock what he has identified as an “unprecedented economic opportunity” for getting our abundant clean electrons to the hungry U.S. market.

In fact, probably the most significant federal contribution to reducing greenhouse gases in the past decade was Harper’s pre-election announcement of a federal loan guarantee for the Newfoundland government to support the $6.2-billion Lower Churchill hydroelectric project. Once built, much of the clean electricity from this project is expected to flow through Nova Scotia into the U.S. market, where it would replace dirty power currently generated from coal-fired plants.

In this instance, Ottawa effectively co-signed a $4.2 billion loan, guaranteeing that if either province defaults, the federal treasury would be responsible for the bank payments. Because there is almost no chance of this happening, the loan guarantee is considered cost-free, although a small percentage of it will be recorded on the federal books, according to finance department officials.

Some may wonder why this should not all be left to the private sector. While capital markets can be incredibly efficient at financing certain types of transactions (recall sub-prime mortgages), the plumbing is significantly plugged when it comes to renewable energy projects and grids that cross-cut jurisdictions.

At least in the early stages of grid development and renewable energy deployment, this kind of support is essential for many economically viable projects to go forward, due to the highly conservative Canadian banking culture that has many other opportunities to earn healthy rates of return.

Harper said this type of federal financial support will be considered for projects that meet three key criteria: they must be of “national or regional importance, have economic and financial merit, and significantly reduce greenhouse gas emissions.” He might consider one more: make availability of these loan guarantees conditional on provincial support for national interest electricity corridors.

This brings us to another big barrier standing in the way of a pan-Canadian electricity grid. Parochial by nature, the provinces have short-sightedly clung to their little pieces of the electricity export pie. The 21st century grid will require transcending historical cleavages and reframing the notion of an east-west grid in the context of a pan-Canadian enabler – a grid capable of supplying the vast U.S. electricity market.

Leadership from the federal government will be essential here. Ottawa must demonstrate to the provinces the potential for an electricity export market that is 10 times bigger than it is today. Instead of fighting over crumbs, provinces must come to realize that a pan-Canadian grid with multiple north-south chutes is a means to enhancing access to U.S. electricity markets.

At the same time, the federal government would be wise to expand the scope of Canada`s foreign policy from its whole-hog focus on oil pipelines to the opportunity of building cross-border electricity highways. According to the National Energy Board, 49 states do not count large hydro from Canada toward their renewable portfolio mandate. Our U.S. foreign policy should ensure that U.S. markets are as open to Canadian clean electricity as they are to our oil.

As Canadians, clean electricity corridors represent an opportunity to transform energy from something that divides us to something that unites us, with an estimated annual $70 billion boost to our economic prosperity that slays almost one billion tonnes of U.S. coal emissions in the same fell swoop.

Can someone please pass this message on to our eco-warriors?

This article is adapted from a Manning Centre presentation.

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