Drucker Nonprofit Innovation Awards spotlight social ventures

Susan Nickbarg

Innovation starts with being curious. Calling all the curious!

In its 23rd year, the prestigious Drucker Nonprofit Innovation Awards had 687 applications and 10 finalists, naming one winner last week: HopeLab, a nonprofit that develops games to improve human health and well being.

The finalists have helped to make society more sustainable by addressing pressing human health, education, environmental, and social challenges, such as the availability of safe water.

So often we default to a view of sustainability centered on carbon abatement, energy efficiency, renewable energy or recycling. The work of these nonprofits spotlights additional or new approaches based on shared value, which can provide ideas for unique product, program, or partnership concepts.

The awards, launched by Peter Drucker in 1991, are run by the Drucker Institute of Claremont Graduate University. Drucker, a man filled with curiosity, was a pioneer in management and social theory as well as a writer, consultant, advisor to heads of GE, IBM, the Red Cross, and as a social ecologist. The lessons and legacy of the late Drucker linger on and, in a sense, are renewed and remade each year with the awards.

“In the years ahead, America’s nonprofits will become even more important,” Drucker said in 2005. “As government retrenches, Americans will look increasingly to the nonprofits to tackle the problems of a fast-changing society. These challenges will demand innovation—in services, and in nonprofit management.”

The nonprofit sector is the third largest industry in the United States, with one nonprofit per 175 people.

The winner: HopeLab

HopeLab, founded by scientist and philanthropist Pam Omidyar (wife of eBay founder Pierre), grabbed the $100,000 Drucker prize made possible by the Coca-Cola Foundation. Through its Resilience Initiative, HopeLab addresses the problem of the lack of adherence to medical treatment by young cancer patients. It uses digital games and social technology to help people effectively tackle physical and psychological challenges and increase their self-efficacy.

HopeLab also met a key criterion of the Drucker Award: rigorously documenting measurable impact. To date, the "Re-Mission" video game had the largest randomized controlled study of a videogame intervention ever conducted, with results published in the journal Pediatrics. HopeLab has distributed more than 210,000 copies of the game in 81 countries. It claims a culture of curiosity, complete with its own handout, “Questions of a Curious Leader.”

Finalist: water.org

The finalist with the most intertwined social and environment impact was water.org. The needs are great. The World Economic Forum, in a 2011 report, named water scarcity as one of the top risks facing companies. In fact, 780 million people lack access to an improved water source, about one in nine people. Every minute a child dies from a water-related illness.

In response, Water.org's WaterCredit program helps people with limited access to safe water, sanitation, and financing in the developing world to obtain these necessities. WaterCredit connects financial institutions that can make needed loans available to those in need. Loans mostly go to helping pay connection fees for house water taps and to construct toilets. According to water.org, the loan repayment rate is 99 percent.

Water.org is the result of a 2009 merger between WaterPartners, co-founded by Gary White, and H2O Africa, co-founded by  actor Matt Damon. It operates in part with funding from the PepsiCo and Skoll Foundations.

It’s the first program of its kind, serving as a model in the sector. (Before WaterCredit, virtually all water and sanitation "access" programs were charity-driven). As of June, more than 329,443 WaterCredit loans were made. Water.org seeks to expand operations from nine countries into new markets and models, including new products and channels for deployment.

The potential of microfinance to democratize access to capital for water access and sanitation is paralleled by the potential of technology and social media to democratize access to information: Game changing.

Awards finalists highlights

The remaining Drucker finalists, selected for their social and environmental innovations are:

  • 92Y, which created #GivingTuesday to catalyze philanthropic giving following Black Friday and Cyber Monday.
  • Arogya World, whose mDiabetes program spurs people to adopt healthier lifestyles through text messages.
  • Community Environmental Defense Council, whose Taking Local Control initiative makes innovative use of local regulations to give municipal governments the power to stop environmental degradation from fracking.
  • Found in Translation, which is helping to lift low-income bilingual women out of poverty through its Medical Interpreter Job Training Program.
  • Freedom from Hunger, which is conveying vital health information to millions of impoverished women in the developing world by reaching them through microfinance institutions.
  • Lincoln Center for the Performing Arts, which has diversified its revenue streams, reduced its reliance on philanthropy and added value to the larger arts community through its consulting arm, Lincoln Center Global.
  • MIND Research Institute, which has created ST Math, a highly effective visual approach to teaching mathematics based on neuroscience research.
  • SightLife, which works with partners across 29 countries to establish eye banks and support more than 17,000 corneal transplant surgeries each year.

Back to innovation

Drucker’s definition of innovation is one I agree with: change that creates a new dimension of performance. Winners of his namesake awards must exemplify this. At the same time, they must create impact, especially in people’s lives. This makes innovation seem pretty straightforward, doesn’t it?

That’s not a quick answer. Many of these nonprofits –and innovators – define and cast an innovative solution on a narrow area of a larger problem. Then, they create, validate, and distribute. To do so takes daring. On top of which, in order to develop and advance, it also requires management skills, capacity-building skills, and committed donors and staffers.

The real winners

The work of these nonprofits creates value for society and provides the underpinnings for business, people and communities to thrive. Innovators and change-makers like these appear to solve problems with ingenuity and little money, at least compared to the typically greater resources of business.

Taken all together it’s a pretty big win. The real winners are communities, individuals and the environment as a whole.

Valuable lessons

These are only a few examples of nonprofits effecting social and environmental change. They confirm that it’s possible to make things happen in areas that strike at the social and ecological commons. I would argue that “getting things done,” and well, is best achieved through sound marketing and management fundamentals.

When I make time after hours and on weekends to teach or train working adults marketing, corporate social responsibility and sustainability in university certificate and executive programs or in workshops, I emphasize the fundamentals. Alongside, I set up discussion and examples of innovation. It helps us to gain practice with thinking creatively in ways that lead us into a more sustainable future.

In a sense, the Drucker finalists mimic their new-product-developer counterparts within the private sector. They imagined a new way forward as architects of innovation and evolved new dimensions of positive social and environmental change.

As Peter Drucker said: “The best way to predict the future is to create it.”

Does data spell relief for congested cities?

Christine Hertzog

Can data kill your pain? The city of Los Angeles is hoping it will, at least where some data sources are concerned.

In May, the city launched a new DataLA site that features data downloads on topics such as crime statistics and budget information, as well as easy-to-understand visualizations of key metrics at a separate portal called PerformanceLAcity.

A June hackathon encouraged developers to take these datasets and create solutions that improve city life. Projects focused on affordable housing, public transit, and — spurred by a devastating statewide drought — apps to report water waste.

Code for America has similar objectives to enhance the quality of civic life on a broader landscape, organizing hackathons in over 130 U.S. cities so far. Its fourth annual Summit occurred in late September in San Francisco. The non-profit organization places software developers, user interface designers, and data enthusiasts into projects to re-imagine, re-think and/or redesign existing processes to optimize productivity, experiences, and satisfaction.

Traffic hacks with ATSAC

For many cities around the world, one of the most intractable problems is traffic congestion. It’s certainly one of the biggest problems for L.A., where 65 percent of commuters are solo travelers. This sprawling metropolis, which installed the world’s first traffic lights in 1924, has ambitious hopes for innovative solutions based on their traffic data.

The data is collected by Automated Traffic Surveillance and Control and city parking management systems. ATSAC, first rolled out to manage signal timing on the streets surrounding venues used for the 1984 Olympic Games, is now implemented citywide at over 4.400 intersections with traffic signals. Street sensors monitor vehicle passage, speed and congestion in one-second increments. This realtime data delivers situational awareness to the ATSAC operations center to adjust traffic signal timings to reduce congestion. The ATSAC system has a number of measurable benefits, most specifically in travel times, CO2 emissions and fuel use. Any concomitant reductions in road rage haven’t been tracked, but that’s not as easy to measure.

[Learn more about resilient cities at VERGE SF 2014, Oct. 27-30.]

On Sept. 22, the city published Request for Information focused on that realtime ATSAC data. The objective is to learn who is interested in this data and what new information and valuable services can be derived with this data.

Smarter grids, smarter decisions

Imagine if electric and water utilities operated this way. If meter data, properly anonymized and aggregated into data sets to protect privacy, were available for hackathons, more feasible solutions for residential rentals and multi-family housing might pop up — two markets sorely underserved by existing home energy management applications.

The federal Green Button initiative has sponsored and participated in hackathons, most recently an event in August in San Francisco, and in September at the KTH Royal Institute of Technology in Stockholm, Sweden. Kudos to the organizers, sponsors and participants of these hackathons that take existing energy data sets and create new applications to address the event challenges. It would be interesting to see utilities get engaged in hackathons. One starting point would be to consider what types of data and data sets could be made available to answer a wide range of their challenges.

Leaders engaged in smart city initiatives acknowledge that they don’t have all the answers when it comes to data manipulation and analysis, and welcome outside help via hackathons to optimize infrastructure, enhance services and improve civic life. Could similar activities help utilities engaged in smart grid initiatives ensure that they are getting the most from their data? There’s no doubt that plenty of pain points potentially could be addressed with intelligent data visualizations and analytics. Maybe expanding the pool of solution contributors could accelerate development and deployment of painkillers.

Image of data in city by Zhu Difeng via Shutterstock. This article first appeared at SmartGridLibrary.

How a small company can join ranks with Etsy and Patagonia

Julie Fahnestock

We want to create change and make a profit. We want to improve systems and pay our employees well. We want to innovate, create and produce and we want to do it with all resources, all stakeholders, including the earth, in the forefront of our minds. We don't want to sacrifice profit for mission or mission for profit. We live in the blur. We are the business leaders of the 21st century.

This blurred space has formalized itself as the Benefit Corporation model, where profit and mission are held as equals. B Corps have done something no other business model has ever done. In the same room, they've brought together the big social enterprise players like Patagonia, Ben and Jerry's and Etsy with sole proprietors and smaller enterprises like Honeyman Sustainability Consulting, WorkSquare (and soon my newly founded B Storytelling). We are equals because we share the same standards, the same values and the same goals.

I recently spoke with Ryan Honeyman, CEO of Honeyman Sustainability Consulting and author of The B Corp Handbook: How to Use Business as a Force for Good about the B Corp movement and what he learned from interviewing several B Corps for his new book. Honeyman got involved with the B Corp model because it represented everything he was talking about with his clients in his sustainability consulting firm.

Free to be better companies

"I used B Lab's Impact Assessment to say to my clients, 'here's what being socially responsible means.' The initial response was excitement. I would show them that Bill Clinton recognized the model and that Patagonia was part of the movement. I was seeing the B Impact Assessment help companies save money on energy, waste, water and increase efficiency and employee engagement. The B Impact Assessment explains the why behind what we do and it increases brand value," said Honeyman.

The B Impact Assessment — created by B Lab, the founding organization of the Benefit Corporation legal structure and certification process -measures a company's impact in four areas: governance, workers, community and environment. Companies must score a minimum of 80 out of 200 on the assessment as part of becoming a B Corp. Honeyman found that there was still a lot of confusion about the B Corp model and the differences between being a B Corp and a B Lab Certified company.

"I needed a tool to hand to a business owner, a tool which outlines everything they needed to know about becoming a Benefit Corporation. The B Corp Handbook is designed to be written in, earmarked and used as a guiding tool," explained Honeyman.

The B Corp Handbook includes a 'Quick Start Guide' to becoming a B Corp which details a plan for taking the B Impact Assessment. Honeyman outlines a process for internal engagement and a plan for improving particular criteria. It also highlights interviews with various industry leaders like Jed Davis, director of sustainability from Cabot Creamery. As part of his research for The B Corp Handbook, Honeyman reached out to the entire B Corp community-over 1100 companies-with five questions. He received 100 responses.

 Honeyman Sustainability Consulting

"How did companies benefit from being a B Corp? What is the biggest gain?" I asked Honeyman.

"A peer group of thought leaders," Honeyman responded. "A lot of companies didn't have peer communities to accelerate and celebrate their individual actions in a global movement. But because we are both part of the B Corp community, I can talk to my friends at Patagonia, for example, about how to attract and engage employees."

Honeyman continues, "In the past, when a company like Patagonia would get press for being a cool company this wouldn't help anyone else. Now when people talk about them, the whole B Corp movement gets press."

A community of diverse peers

Honeyman refers to the B Corp Community as a "tribe of like-minded people." At last year's B Corp retreat in Colorado, Honeyman remembers everyone clapping for the one B Corp who came from Mongolia.

That sense of camaraderie is easy for Honeyman to explain. "Most social entrepreneurs want to be part of something that is bigger than their own business. I never thought I could be considered a peer to Ben and Jerry's or Patagonia. I'm a one-person company, but also part of the community right along with King Arthur Flour."

This camaraderie comes from sharing similar values as defined by the rigorous standards in the B Impact Assessment. But, it's also a tool any company can use, says Honeyman. At last year's B Corp retreat he was seated next to Ben and Jerry's team and the challenge of measuring the impact of their suppliers came up in discussion.

"I suggested they have their five biggest suppliers fill out the B Impact Assessment. This way they could see across their supply chain and see how they were doing in environmental and employee issues. Soon after the retreat, they hired me to work with these suppliers, including one of the largest chocolate companies in the world. And now, one of the largest chocolate companies in the world has taken the B Impact Assessment," said Honeyman.

B Corps represent a new era for business: an era of community, employee empowerment, transparency, accountability and vision. We are the generation who uses business as a tool to make money and to make the world a better place. We seek to "Be the Change."

Top image of B the Change logo via B Lab. This article first appeared at Just Means.

Why Procter & Gamble is resetting its sustainability goals

Joel Makower

Today, Procter & Gamble is updating its sustainability commitments, expanding some of its efforts and dialing back on another. Behind that announcement is a larger story about how the world’s largest consumer packaged goods story is viewing sustainability these days.

Setting sustainability goals for a multinational company can be tricky stuff. How high can you set the bar and still set yourself up for success? And what if you reach your goal ahead of schedule — do you raise the bar? What if you’re not making the progress you hoped — do you lower the bar? Four years ago, P&G set a series of 10-year goals. As it nears the halfway point, it’s a good time to reassess.

As part of its assessment, P&G is adding four new 2020 goals, aimed at expanding its efforts in water conservation and improving the environmental sustainability of its packaging. It is also revising an existing goal to drive more innovation on renewable materials.

The reassessment coincides with the emergence of Martin Riant, group president, Global Baby and Feminine & Family Care, who late last year became P&G’s executive sponsor of sustainability, a position for which he volunteered. Riant, who has been with the company since 1980, took a fresh look at the 2010 goals. Riant leads Procter and Gamble’s $21 billion baby, feminine and family care business. The sector features a portfolio of powerful billion-dollar brands such as Pampers — P&G’s largest — and Bounty, Charmin and Always, along with other iconic brands including Tampax, Naturella, Puffs and Luvs.

“As I came in to my role the first thing I was looking at is, are we very clear on where we have our strategic focus on sustainability?” he told me recently. “Are we really working on the areas that are going to have the most impact, both in terms of sustainability but also in helping us create value as a company?

“The vast majority of those goals that we established at the time looked like they were in the right order of magnitude and we should be able to deliver on them by 2020. ... (However,) it became apparent that while we’re on track for most of these goals, there are some areas which we should be acting on — or should at least be talking about — that were simply absent from the goals.”

Moreover, “The goals weren’t sufficiently hardwired with the business units in the company,” a state of affairs with which many corporate sustainability executives can identify.

Liquid assets

The water goals being announced today reflect the understanding among many companies about the declining or unreliability of that precious resource in many parts of the world. While Riant said P&G isn’t a major water user in most areas where it operates, it’s still a growing concern. The lion's share of P&G's water impacts come during the consumer-use phase — think shampoo, toothpaste and laundry detergent.

As a result, the company is focused on the smaller share: water used in its own facilities. Specifically, P&G is committing to reduce water used in its manufacturing by 20 percent per unit of production, with a specific focus on conservation efforts at facilities in water-stressed regions, and to provide 1 billion people access to “water-efficient products,” although that is not defined.

As part of its focus on water, the company is being "much more rigorous about doing assessments of our facilities,” said Riant. “Before any new facility is located or decided upon, we want to make sure we understand its supportability from a water availability point of view. We are also going through each of our existing facilities and understanding the current water availability environment where they are located. Are they in stressed areas? Do we need to give them a priority in the interventions that we can make from a technology point of view? I think we’re getting much more systemic about our operations in that regard because it’s necessary given the problems in some areas now.”

I asked Riant how much of the company’s water-efficiency goals will come from new technology and how much from operational changes. “It’s frankly quite hard to separate the two,” he responded. “A lot of the what you might call operational impacts are very dependent on us finding new, efficient processes. There will also be operating efficiencies — being careful that we recycle water by allowing it to evaporate out of the system and that kind of thing — but a lot of it is coming up with novel, more efficient technologies for using water.”

Foiled by oil

The other part of P&G’s announcement has to do with its commitment, set out four years ago, to replace 25 percent of its petroleum-derived raw materials with renewable materials by 2020. Today, the company is revising that commitment downward. Rather, stated the company, it is committing “to creating technologies by 2020 that would let P&G substitute its top petroleum-derived raw materials with renewable materials, as cost and scale permit.”

To be sure, there’s an barrelful of squishiness in that statement.

The original commitment turned out to be unfeasible, due in large part to the drop in petroleum prices brought about by the fracking revolution. That made the cost of adopting alternative solutions less financially viable.

Like so many seemingly simple commitments — to outsiders, at least — this one turned out to be not-so-simple.

“We developed a number of solutions, but they proved to be too costly and too complex to expand on a global scale,” Riant said. “As we started getting into the process of going through our materials list and seeing what we could change to biobased feedstocks, these were at a scale nobody had really done before.” Each new process “needed to be confirmed, scaled up and done in an affordable way, and in many cases would require substantial infrastructure investment by our supply base to get there.

“In other cases, the materials already existed but the cost of production was so much higher than the petro-based materials that to get to a full 25 percent substitution by 2020 would have hugely added costs either to us, our suppliers or the consumer. And based on where we understand consumers to be in terms of not wanting to make tradeoffs in that respect, we said, ‘We’re just not going to be able to go that fast but we shouldn’t stop. Eventually we’re going to need to do this.’”

The company has started to incorporate some of the more available and affordable feedstocks in parts of the business, said Riant, “partly to get the learning of how to use them but also to learn how we can start to engage consumers in a way that would impact their purchase preference.” For example, Pantene Nature Fusions is packaged in bio-plastic bottles, and the company has made that part of the brand positioning.

The potential payoff

Meeting its sustainability goals is not just a technology challenge, said Riant. It’s also a people challenge. “We’ve got to learn how to communicate this to consumers in a way that they can make a choice for more sustainable products, and somehow converge getting more affordable costs with the consumer willing to pay a little bit more for these biobased products, until they really have a scale.”

It’s a challenge that P&G — along with every other consumer goods company — has struggled with for more than two decades: inspiring consumers to embrace sustainability in no-compromises kind of way.

“I don’t think we’ve done nearly enough with consumers in this area,” said Riant. “Some of that flows from us not having the businesses as connected in the delivery of our sustainability goals as they need to be. And that’s something we’re changing. I think there is a lot of upside if we can make sustainability more accessible and transparent to consumers so people can actually find out what we’re putting in our products and why, and how renewable they are. And then, as we make progress in this area, communicating that to consumers in a way that it makes the overall proposition more attractive.”

The potential payoff is considerable. Procter & Gamble serves nearly 5 billion people around the world — about 70 percent of the planet. Getting even a fraction of those souls committed to less-resource-intensive products could lead to significant reductions in energy, material and water use, solid waste, and their concomitant greenhouse gas emissions.

It won't be easy, but the convergence of technology and people can ease the way. “In the days when a lot of our communication with the consumer was a 30-second TV commercial, you’re not going to allow much of your communication time to be about sustainability because you need to communicate a reason why the consumer should choose your product,” said Riant. But online is a different world, where interested consumers can click endlessly to learn more: “It gives us much more option to introduce elements of sustainability into the overall consumer communication on our brands, and that’s something we’ll be working on.”

For Riant, this isn’t just business — it’s personal. Before we ended our conversation, he emphasized that he is “personally very keen to make this happen,” referring to the company’s overall sustainability strategy. “I am in charge of a business which is essentially a disposable business. I would feel much better personally if more of those products were made of renewable materials and were ending their life more usefully.”

Photocollage at top by GreenBiz Group

How Paul Gagliardo taps the 'next big thing' at American Water

Matthias Krause

Hear Gagliardo explore Big Data and big water at VERGE SF, Oct. 27 to 30.

Who would predict that an environmentally conscious hippie would become a prominent name at America’s largest publicly traded water utility (or a self-proclaimed alien, for that matter)? Yet those who hear Paul Gagliardo talk about his work as manager of American Water’s Innovation Development Program can’t help but think that his has a lot of fun with it.

“I am a venture capitalist without the capital,” says Gagliardo. Basically, just like a VC, he shifts through pitches from people who have great ideas about how to make American Water’s business cleaner, more efficient and more successful. Those who make the cut get 15 minutes to state their case. Next, Gagliardo decides if the idea has any merit to be eligible for the next steps, potentially resulting in a strategic partnership.

He looks at new technologies, products and services, and vets them for their technical efficacy and value proposition. “If it’s only 5 percent better than what works now, it’s not that big a deal,” says Gagliardo, “if it’s 50 percent better, now we’re talking. And so that’s how we look at it.

Looking for the next big thing in the water space, he says, “My hit rate is 2 or 3 percent, which is a typical venture capitalist hit rate. You get to plow through a lot of stuff to see what works, how it applies to your business, where the big value proposition is, where the interest is in the company. And the business models of both companies have to align.”

After almost 25 years working on waste projects with the city of San Diego, Gagliardo called it quits. A stint at an engineering firm and with a real estate developer followed before he says his “perfect job” opened up in New Jersey at American Water, revenue $2.9 billion in 2013.

What would be really cool and is badly needed, he says, are water-borne drones with a very special skill set. The drone of his dreams would be very small, less than four inches, and could be deployed into a water pipeline through a fire hydrant. Untethered, it could be driven with a handheld device, going upstream or downstream. It would spot a leak in a pipeline, stop, hover, and then fix the leak with special glue that works even under water.

“That is one of my personal favorites,” says Gagliardo, “super glue could work when it’s fully wetted, in other words, when the pipe is full of water, but that’s certainly an issue. A bigger issue may be communicating with the drone, untethered.”

The potential would undoubtedly be huge since the largest expenditure that all water utilities are facing is fixing and replacing existing underground infrastructure, namely pipes.

“The lessons I learned a long time ago and have carried through over the years I worked for American Water is to get rid of the losers fast,” he says.

Gagliardo learned the business part of the job at a later stage of his career, yet his interest in the environment sprouted early. Growing up on Long Island, he often took a boat with his father onto the South Oyster Bay, where he would notice when the sewage plant wasn’t working very well or when residents’ septic tanks were leaking. For him, these problems were obvious, even though not many people in the 1950s and 1960s would acknowledge them.

“I spoke at the first Earth Day in 1980,” says Gagliardo, “so I was more an environmentalist than a hippie, I guess.” When it was time to pick his first job, he went for a poorly paying solar company instead of a well-paying oil firm.

Following his green-leaning beginnings, Gagliardo, an engineer by trade, took a job with the city of San Diego. Starting in public works construction, he moved on to hazardous waste remediation, because that became a “big thing” in the mid-1980s. He moved to the trash business in the early 1990s, when that became a “big thing”. “I don’t know if you noticed a pattern here,” Gagliardo says. “Everything is a big thing; that’s when I get involved.”

In the mid-1990s, when the drought hit California, he was shifted to a big toilet-to-tap program. The idea: Filter and purify sewage water to make it potable again. By 1999, all the major problems were solved and the program was ready to be implemented. However, the effort was killed by what Gagliardo describes as “political reasons.”

“I was always on the bleeding edge of things nobody else wanted to work on,” says Gagliardo, “I was kind of the guy that took all the heat, and if [the program] succeeded, everybody else took credit for it. If it failed, my joke was I would get my head cut off and they’d stick me in the corner.” That reminds him of the character Jack Jeebs in the movie “Men in Black”. Jeebs is alien living on earth in the disguise of a pawn shop owner. “And when they shoot his head off, it grows right back,” Gagliardo says.

“I have an unreasonable faith in myself, and I have thick skin,” he adds. “I really like being out on the edge. And seeing what’s over the edge and bringing the news back and being the advocate for it.”

As for all those water utility pipes? They were designed to last 50 years, but are 100 years old now, and by the time they’re all replaced, they’ll be 200 years old.

“We’ll never catch up; it costs too much money,” says Gagliardo. But with the right kind of drone it could be done. He sounds ready to tackle the problem, without fear of failure or losing his head.

Is Santa Claus in a new war zone or a growth market?

Sharon Burke

Of all those in Russia's "near abroad," who nervously look over their shoulders at Ukraine and wonder who is next, one individual has more cause to worry than most: Santa Claus.

Vladimir Putin has, after all, claimed the North Pole as Russian territory, going so far as to plant a flag under the ice and establish a new Arctic military command. For that matter, Canada and Denmark also have declared ownership of the North Pole and are stepping up their polar military presence, as well.

The children of America can relax, however: Santa is not likely to get caught in the crossfire. Only someone with mystical powers could afford a significant year-round military presence at the North Pole right now. There's no actual land there, just snow and ice with more than 13,000 feet of frigid ocean underneath and summer temperatures that barely break 0 degrees Fahrenheit.

That hasn't stopped the hype, however, about a new arms race in the far north, or a land grab, or a trade war. On the other hand, what's happening in the North Pole will be consequential — just maybe not in the ways grand strategists expect.

If this keen interest in the Arctic seems sudden, in many ways it is. Much of the recent literature on the subject won't necessarily clear up why that's the case, though. In their article announcing the launch of the new Congressional Arctic Working Group, for example, Representatives Don Young and Rick Larsen point to new regional shipping, tourism and resource extraction opportunities and security challenges, but they gloss over the reason this is happening.

Here is the reason: the sea ice in the Arctic is melting. This is not an opinion; it is an observed phenomenon, documented by satellite imagery. There is variation in the amount of ice from year-to-year, but the last 20 years have seen the most pronounced thawing trend in recorded human history. This is climate change, and it's not just an academic point to score. A better understanding of why the thaw is happening will help us plan for a smarter, safer future.

So, is a melting Arctic an economic opportunity or a military challenge? An entirely new global shipping route, after all, does generate excitement in both camps. The answer to that question could determine just how worried we all should be.

The economic impact of an Arctic that is open for business could be huge. For centuries, explorers have sought a polar shortcut between Asia and Europe, potentially trimming thousands of miles off the journey. Last year, Canada finally recovered the 170-year-old remains of one of those ill-fated expeditions — the same year that as many as 91 ships safely crossed the Northwest and Northeast passages through the Arctic, a record.

In that context, it looks more sensible than sinister that China, a non-Arctic nation, is building its second icebreaker and seeking property in the region. China has a strong economic motive, given its reliance on trade. There's also China's increasingly urgent quest to diversify its energy supplies, as its import dependence continues to soar. The U.S. Geological Survey estimates (PDF) that 13 percent of the world's remaining oil and 30 percent of its natural gas are in the region, as well as minerals important to today's high-tech economy. It's not been technically or economically feasible to confirm what's there, but the surrounding geology and reserves facilitate an educated guess, and the melting ice is starting to make it possible to explore for and produce Arctic resources.

Another sign that this is an economic challenge: Shell, already having spent $6 billion in the Alaskan Arctic, has announced new plans to drill off Alaska's northern coast, despite a mishap in the area last year. Exxon-Mobil is drilling a $3.2 billion test well in the Kara Sea right now, although the project's future may be at risk due to Russia's invasion of Ukraine and U.S. sanctions.

Russia, of course, complicates what appears to be an economic opportunity. With the longest Arctic coastline and a sea route with warmer, faster-thawing waters, Russia has a clear comparative advantage in the region. Part of that advantage is its 38 icebreakers — more than double all the other Arctic countries' fleets combined — and the world's only nuclear icebreaker fleet. But here's the thing: Although Russia is noisily claiming to be re-establishing its Cold War-era polar military presence, most of its actual investments are focused on oil and gas and areas that are clearly Russian territory.

Territorial matters have the potential to be incendiary, however. These new shipping channels run through an almost fully enclosed ocean, ringed by five nations, which in the past have not really needed to iron out competing claims in the largely inaccessible region. As that situation has begun to change, some territorial disagreements have been worked out peacefully. But considering that four Arctic nations are NATO members and one is Russia, remaining claims may be harder to resolve these days, and the differences in regional presence are becoming more strategically significant.

In other words, the economic and military interests in the Arctic are not only both important, they are intertwined.

So, what is Uncle Sam to do? As an Arctic and seafaring nation, the United States also has compelling economic and military interests at stake, but not much capacity to promote those interests. And yet President Obama's Arctic Strategy (PDF) largely vows just to study the matter, in a wait-and-see approach.

Strangely enough, that may well be the best strategy, at least for now. "The challenge," as U.S. Department of Defense report (PDF) to Congress noted, "is to balance the risk of being late-to-need with the opportunity cost of making premature Arctic investments." Indeed.

The area is still difficult and dangerous to transit and that is likely to be the case for some time to come, and specialized polar equipment is very expensive. Consider Canada's ambitious plans to build a new naval base at the eastern entrance to the Northwest Passage. As those costs ballooned past $200 million, Canada quietly scaled back to a 15-person seasonal outpost with no airstrip. For that matter, the Congressional Arctic Working Group notwithstanding, it remains to be seen if Congress is willing to foot the $1 billion bill for a single polar icebreaker.

But just because it may not pay to be a first mover in Arctic investments does not mean the United States should do nothing at all to get ready for the Arctic spring. The recent appointment of a Special U.S. Representative for the Arctic could help, especially with the U.S. taking its turn as chair of the Arctic Council next year. As long as it isn't just a stunt appointment to further delay actually doing anything, that is.

In particular, the United States should continue to take action to protect U.S. borders and territory, as well as access to international waterways. The United States, working with Canada, has fairly robust northern missile defense, although it may be in a state of disrepair in places. This obviously is ripe for reinvestment, as are communications and surveillance capabilities in the region, which are sketchy at best. Those particular baseline investments may well be the best response to Russia's bold pronouncements.

As for territory and international waterways, in a pinch, the United States has the means (such as submarines) to protect those claims without a large icebreaker fleet. It would, of course, be a big help if the Senate would just ratify the Law of the Sea Convention, which a radical fringe of the Republican Party has been preventing with oddball proclamations about world government. That is rubbish, given the structure of the treaty, but the fringe's instransigence puts the United States at a disadvantage in working out conflicting Arctic claims.

One of the clearest and most present dangers in the Arctic today is actually just the uptick in maritime traffic, raising the risk of accidents. Given the long distances, harsh environment and lack of suitable equipment, this really is a disaster waiting to happen. Indeed, that alone is a good argument for another heavy icebreaker, which will bring the total in the U.S. inventory to two. It's not as exciting as a trade war or an arms race, but it is a very good reason for regional powers to pool their resources and information.

Finally, and this gets us back to acknowledging why we have this challenge, the United States should set trip wires that trigger additional investment if the situation warrants it. The most recent United Nations Intergovernmental Panel on Climate Change report (PDF) projects that the Arctic will see "ice free" summers (not locked in with solid ice) by mid-century, which means there is time to make the appropriate investments. Or maybe not. In the last few years, the seasonal ice retreat has outstripped projections and it is possible the region could see "ice free" summers within a decade or two.

The question of whether the contest for the Arctic is predominantly economic or military might be somewhat moot in that scenario. Such a profound thaw likely would mean radically accelerating climate change, with pervasive effects on the worldwide availability of freshwater and the volatility of weather patterns. It is a mark of the absurdity of the U.S. polity that some business and government leaders tout the commercial opportunities and security risks of a fully navigable Arctic, without acknowledging what it really means.

They probably want to arm Santa Claus, too. If Putin doesn't get to him first.

This article originally appeared at New America. arcticocean_ruzanna_sstock.

Beyond treaties: A new way of framing global climate action

Fred Pearce

This article was originally published by Yale Environment 360.

The recent United Nations Climate Summit in New York passed with many promises, but no firm pledges. Most notably, China's vice-premier Zhang Gaoli promised his country would peak its carbon dioxide emissions "as soon as possible," and President Obama said that next year he would publish a plan to cut U.S. emissions after 2020. On the fringes, major corporations trading in agricultural commodities grown on former rainforest land joined with governments in signing a declaration promising to halve net deforestation by 2020 and end it by 2030.

The summit never was intended to conduct detailed negotiations for a new climate treaty. Those talks will take place between now and the U.N. climate conference in Paris at the end of next year, which is intended to deliver the legally binding national commitments that a similar event failed to deliver in Copenhagen in 2009.

But behind the scenes, some are asking what happens if there isn't a deal in Paris. Or even how much it matters whether there is such a deal. Failure is possible, after all. The political winds are even less propitious today than they were five years ago.

Economic stasis continues in Europe, previously the most vocal advocate of action on climate change. Earlier this month, the European Union decided to do away with a stand-alone climate commissioner in Brussels, merging the post with the energy portfolio. The new post-holder, Miguel Arias Cañete, holds shares in an oil company and, when he was agriculture minister at home in Spain, sat in a government that cut spending on renewables, in defiance of EU policy.

Meanwhile, Germany, once Europe's climate tub-thumpers-in-chief, is in a messy transition on climate policy as it burns ever more coal, while shutting down its fleet of low-carbon nuclear power stations. Japan's emissions are rising post-Fukushima. And Russia, the world's second largest oil producer, is not about to cozy up to anyone on climate policy.

It sounds bleak. Strangely, all may not be lost. The answer may lie in Plan B — reframing the entire climate issue as one of national decision-making and self-interest, rather than global treaty-writing. A close reading of national policies shows that many countries are taking action on climate not because they have made legally binding international commitments, but because they want to.

Plan B began to emerge in the aftermath of Copenhagen. By the following year's U.N. climate conference in Cancun, Mexico, many nations with no previous formal emissions targets — including Brazil, Mexico, South Africa and China — had made their own domestic commitments. Most were about cutting the carbon intensity of their economies rather than actually cutting emissions. But it was a start.

Some targets were aspirational. But Britain passed a Climate Change Act requiring future governments to cut emissions decade by decade to deliver an 80-percent reduction in emissions by 2050 from 1990 levels.

Skeptics would point out that, without international treaties to hold their feet to the fire, future governments always could repeal laws they find inconvenient. But that may be to misread what is going on. The commitments are not about burden sharing internationally, but about self-interested domestic energy policy.

Many agree with two former U.S. senators, Timothy Wirth and Thomas Daschle, writing at Yale Environment 360 in May, that national self-interest is the only likely route to cutting emissions.

For 20 years since talks began to draw up the first Kyoto protocol — whose meek emissions targets expired at the end of 2012 without being fully replaced — negotiations have taken place around "burden sharing." Cutting emissions has been assumed to be bad for economies, so nobody has wanted to go faster than anyone else.

The United States, in particular, refused to take on any formal commitments unless emerging industrial rivals in Asia did, too. But those countries said their low, recent emissions were not to blame for climate change so far. The result: deadlock.

But suppose that is exactly the wrong way to look at the issue — 20th-century thinking when the world has 21st century technology at hand. Suppose there is no real economic penalty for being a climate good guy. And suppose that going green is actually a boon to economic growth, with the short-term costs of adopting low-carbon solutions quickly outweighed by benefits from industrial efficiency, more jobs, healthier air and more productive ecosystems.

It sounds like a utopian vision. But it is what is increasingly being argued by some economists.

Earlier this month, it was the main message of a report, "Better Climate, Better Growth: The New Climate Economy," from the Global Commission on the Economy and Climate. This is an independent body chaired by Felipe Calderon, former president of Mexico, and Lord Nicholas Stern of the London School of Economics, whose Stern Review in 2006 first opened up a debate about the economics of tackling climate change. The report's authors included researchers from two leading environment think tanks, the World Resources Institute and Stockholm Environment Institute, economists from McKinsey and others.

Their central conclusion is that low-carbon investment is a smarter way to economic wealth than high-carbon investment. It will restructure economies and societies — and even corporations — so that they enjoy better economic growth. There is no longer a burden-sharing downside. It is a race to the top. High-tech and high efficiency equal low carbon.

The report looks in detail at urban design, energy and land use, and concludes that "all countries at all levels of income now have the opportunity to build lasting economic growth at the same time as reducing the immense risks of climate change."

Denser, greener cities have lower transport costs and reduced health bills, especially for illnesses caused by air pollution. Smog illness currently reduces GDP by 4 percent in many countries, the report notes, and by more than 10 percent in China. Meanwhile, smarter and more intensive food production that brings abandoned and degraded farmland back into productive use will deliver higher yields, bigger profits and reduced carbon emissions as forest loss is stemmed. Finally, with the costs of renewables down 90 percent in the last decade, the report said, these energy sources are now competitive with coal for power generation.

In comments to reporters, no authors of the commission report said a global treaty to fight climate change would be anything other than a good thing. It would send important signals that encouraged action by governments and companies. But the report's lead author, Jeremy Oppenheim, a London-based economist at business consultant McKinsey, said a deal in Paris "is not essential. All the things we propose are in the economic interests of countries on their own terms."

Similarly, a recent report from the respected British consultants Cambridge Econometrics (PDF) forecast that the planned 60-percent cut in U.K. carbon emissions would deliver a GDP that was 1.1 percent higher than if the country stuck to a high-carbon economy. Countries, the report found, should be making these changes out of self-interest.

But just because the economics may stack up does not mean a low-carbon economy will emerge automatically. Capitalism isn't so simple.

Right now, said Stern, the markets and governments are rigged against the economically (and environmentally) optimum path to growth. The vested interests in high-carbon are huge. They are on display in the current pushback by the U.S. power industry against Obama's June announcement of rules to cut carbon pollution from the country's power plants by 30 percent from 2005 levels by 2030.

Estimates of the amount of government subsidies given to fossil fuels around the world range from the International Energy Agency's half a trillion dollars a year to the International Monetary Fund's $2.3 trillion. Even the lower figure is six times the total subsidies for renewables. According to the IMF, fossil-fuel subsidies "crowd out growth-enhancing public spending."

Moreover, pure market forces cannot counter the hidden costs of dirty fuels, such as higher health bills and environmental damage. Such subsidies and market failures, Stern said, slow growth as well as pollute the atmosphere and cause deaths. They have to be tamed. Carbon pricing is one route, institutional investors agree. Earlier this month, investors handling trillions of dollars a year called on governments to establish a stable system for global carbon pricing. They said it would reduce the risks to their investments from climate change.

All this leads Stephen Tindale, former director of Greenpeace UK, to argue in a recent report that international climate negotiations should be focused less on setting national emissions targets and more on fixing these perverse financial incentives against a low-carbon economy.

Yet despite the dysfunctional markets, green growth already may be fitfully turning into reality. Witness how major corporations consuming agricultural commodities signed up at the U.N. climate summit last week to a New York Declaration on Forests — an initiative that the World Resources Institute said "could result in more emissions reductions than removing every car, bus and plane from the U.S., China and India combined."

As part of the declaration, the companies promised to cut forest loss from their activities by half by 2020 and to end it by 2030, and to push a massive effort to restore degraded croplands — potentially preventing billions of tons of carbon emissions annually. With productive land running out, they see this as good, self-interested business as well as climate-smart.

Many governments, in varying manners and to varying degrees, also seem to see national benefits from reducing their dependence on high-carbon fossil fuels. China has reduced its annual rise in coal consumption from 18 percent a decade ago to almost zero. Coal burning is set to decline in China starting in about 2020, according to some analysts. The reasons include both the health costs of killer smog and the growing availability of cheap low-carbon alternatives, from nuclear to solar.

The new technology-minded Indian government of Narendra Modi is committed to bringing electricity to the 400 million rural Indians without power from the grid through the installation of solar panels. But Modi, who did not attend the U.N. climate summit, has a long way to go. The Global Carbon Project points out that the carbon intensity of the Indian economy is still bucking global trends by continuing to increase.

Nonetheless, the global explosion in solar power is a major reason why almost half of all new electricity generating capacity coming on stream last year was from renewables. And that trend helps explain why there has been at least a partial break in the previously lockstep rise of global GDP and CO2 emissions, which historically have increased at about the same levels.

According to a study for the European Union, in 2012 global GDP rose by 3.5 percent while CO2 emissions rose only 1.1 percent. "We are seeing a decoupling of CO2 emissions from global economic growth," said co-author Greet Janssens-Maenhout, a researcher at the EU's Joint Research Center. She may have been premature — the gap narrowed in 2013, according to the Global Carbon Project. But the signs of progress are there.

This doesn't mean the end of the climate crisis is in sight. Far from it. Atmospheric concentrations of CO2 rose at a record rate last year, due in part to nature's faltering ability to soak up the enormous amount of greenhouses gases that we emit.

And time is short. According to a new study published last week in Nature Geoscience, at current emission rates the trillionth ton of CO2 from human activity would be thrown into the atmosphere in about 30 years. That would mark the moment when many scientists say we will be all but committed to warming beyond 2 degrees Celsius, the presumed threshold for dangerous climate change.

If the economists who note the benefits of moving to a low-carbon economy are right, and if we fail to halt the danger, then politics will be more to blame than economics. But if self-interest is the route to saving the climate, then maybe we still have a chance.


The Future MBA, week 14: Creative and cooperative ideas

Giselle Weybrecht

For 100 days I am posting 100 ways that we could rethink and reimagine the MBA, to transform it into a tool for creating the sustainable leaders that our organizations and the planet need.

I’ll explore all aspects of the MBA, ranging from curriculum and research to partnerships and campus activities. Some ideas could be put into practice tomorrow while others would require a complete rethinking of the way we view the MBA.

This brainstorming of ideas is meant to encourage discussion, so please share your thoughts and comments and elaborate on the ideas you find the most interesting.

Day 92: Reflection

Most time in business school is spent learning about and analyzing the decisions that others made, the numbers that others generated and the cases that others built. The Future MBA will put more of an emphasis on students themselves and how they can develop their own self-awareness and skills as a future employee, manager or leader by tapping into and using their own experiences as a key part of the learning process. Many assignments, experiences and opportunities will focus on giving students the chance to reflect at various levels on the work that they have done in the past and how what they learn in the classroom helps them to better understand decisions they made both before and during the degree. This also will help students reflect on their actions moving forward and continue to learn from their experiences throughout their careers.

Day 93: Changing themes

Every year, despite what happens in the world around us, the MBA stays largely the same. Similar classes are taught in a similar way. How do we create an MBA that responds to the world around us today and prepares students for the world of tomorrow?

In the Future MBA schools will focus on a particular theme each year. This special program will happen in parallel to the traditional MBA but be open to a wider audience. Each school can choose its theme based on issues of importance in its communities, countries, region or internationally. This could include conflicts, political issues, environmental or social issues, even new discoveries. 

This shorter program (six months to a year) will contain a range of events, courses, conversations and projects specifically aimed at raising student awareness of that issue as it is relevant today, discussing how to move that issue forward and exploring the issue in the future. The goal would be to not just create individuals who are knowledgeable and ready to work to solve these challenges today, but also to gather momentum and act as a central space to shape discussions around that topic and move the issue forward. Students of all ages would be invited to register for these part-time programs and alumni would be allowed to return to participate in some for free.

Day 94: Shareholder engagement

Universities hold billions of dollars in corporate stock. As shareholders they have the opportunity and a responsibility to positively affect those companies and influence their sustainability policies and strategies. How do we turn universities from passive to active investors for the benefit of the universities, the companies and society as a whole?

Future MBA students will engage with faculty and staff at the business school to examine the companies the university has shares in and how they choose which shares to invest in or divest from. They will explore opportunities to vote on issues, attend annual meetings and put forth or comment on shareholder resolutions relating to social and environmental topics. They also will collaborate with other universities and shareholders to influence corporate policies in positive ways and provide useful ongoing contributions in financial capital, human resources and additional resource.

Day 95: Creative space

When it comes to solving the world’s and business’s challenges, creativity, generating new ideas, thinking outside the box and innovation are all skills that future graduates need. Despite that most business school students do not come from a traditional “creative" background, it is important that they explore how to be inspired by the world around them and to better understand how they can tap into their own creative spirit to come up with new ideas, products and projects in their jobs.

In the Future MBA there will be a creative space on campus. This space will contain movies, music and musical instruments, furniture, art and craft supplies from around the world. Established and emerging artists will be invited to share their work. It will be a highly interactive space where items will change constantly.

Students will have the chance to enter the space to explore their own creativity and different methods of tapping into it, to see what inspires them and to help them to put that inspiration to good use in their work now and moving forward. The space will be created and updated through partnerships with local museums, art galleries and art centers who will send individuals to work on campus with the students and invite the students to their spaces to explore their work.

Day 96: Reporting

Leading businesses are pushing what is possible in corporate reporting. They are increasing disclosure, becoming more transparent and reporting on issues most material to their businesses. They are experimenting with environmental profit and loss statements, integrated reporting and other formats that likely will become the norm for a more comprehensive way of reporting in the future.

Instead of following business trends, the Future MBAs will be ahead of the game when it comes to reporting. They will create, shape and test out innovative new ways of reporting which will inspire and shape the way that other organizations such as businesses and NGOs report on their activities, both in terms of quantitative and qualitative data.

Day 97: Playing

Individuals of all ages spend time playing highly addictive and simple video games. A growing number of these games aim to help solve bigger challenges in the field of sciences, using players to solve tiny bits of the problem and bringing all these tiny solutions into larger ones.

Students in the Future MBA, as well as the public at large, will have the chance to play a collaborative video game which gives them a chance, using real data, to build new businesses and explore new business models that make more sense for the planet, society and businesses. It will give players a chance to explore what really should make up a successful business and business environment. The game will be open-source and free. Researchers and students can explore solutions from the game to create new businesses or implement changes to the business environment.

Day 98: Thinkers in Residence

Researchers in universities spend many years doing in-depth analysis of topics. But what about individuals working in business who are exposed to new challenges on a regular basis and who can’t necessarily wait years or months or even dedicate that time themselves to that research?

The Future MBA will invite individuals every year onto campus as Thinkers in Residence. These could be alumni, business partners, individuals working in the community or retirees, and can choose to spend between a week and several months in this position. Through this program, individuals can identify a theme or challenge of interest to them, their community or their organization and choose to spend a short amount of time exploring this topic. Themes also can be established by the business school based on their focus areas and individuals can apply to do projects that fit in with those themes. Each project will have an outcome which will be presented to the school community and to the individual's own professional community which could result in more in-depth research or work, a prototype, an article or a plan of action.

Day 99: The cooperative

A cooperative is a business enterprise owned and controlled by the members that it serves. Cooperatives put people before profit by helping their members achieve their shared social, cultural and economic aspirations.

In the future, the MBA could become a cooperative with students and alumni making up its membership base. It would focus on helping them to achieve their educational and life goals as well as contributing to knowledge in their communities and internationally. It would provide services to serve its members' needs and take a long-term view, exploring new ideas and opportunities. Because of its governance based on balanced democratic control, it would hold itself accountable for limiting impacts that otherwise might go overlooked.

Day 100: Today and tomorrow

What will the future company, the future NGO, the future consumer, the future customer, even the future MBA look like?

In the Future MBA, students will explore these topics. In a series of ongoing discussions over the course of their program, classes of students will become Futurists, tapping into their diverse experience and backgrounds to explore, predict global trends, scenarios and opportunities they believe will become business reality throughout their careers. The course will encourage students to think about what kind of future they would like, a future that will work for the planet and society as well as for the business sector. It also will focus on the now and how they can shape and reach the desired future through the work they do post-graduation through their career choices and business decisions. This is a future that they will create, so they have the power to change it.

Top illustration by Ollyy via Shutterstock.

Oil companies quietly prepare for a future of carbon pricing

Mark Schapiro

This article originally was published by Yale Environment 360 and is reprinted here with permission.

In the winter of 2013, after mounting pressure from shareholder groups who wanted to understand the impacts of any future climate legislation, the biggest U.S.-based oil companies were nudged into a surprising revelation: "Carbon," the stand-in for carbon dioxide and all other greenhouse gases, had been given a price in the companies' internal accounting. The externalized and largely uncounted costs long associated with fossil fuels — 20 pounds of CO2 emitted with every gallon of gasoline, according to the EPA — were being given a number.

At the time, the biggest of the oil majors, ExxonMobil, reported a carbon price of $60 per metric ton to the Carbon Disclosure Project, which released the figures (PDF). Chevron, BP and Royal Dutch Shell reported a price of up to $46 per ton, and for the first time, the oil majors appeared to be lifting the lid on the accounting sleights of hand that have kept the full costs of oil hidden from public view. 

The toll of fossil fuel emissions — from the ballooning costs of crop insurance tied to climate-related weather extremes, to the ravages of sea level rise in coastal areas, to stresses on health services as tropical diseases migrate northward — is part of the discussions at the U.N. climate summit in New York this week. And the new carbon mathematics is putting a spotlight on the oil industry: Earlier this year, all four major oil companies were listed in the journal Climatic Change (PDF) as being among the 90 global businesses responsible for two-thirds of the world's greenhouse gas emissions.

None of this suggests that the world's petroleum giants are contemplating a move away from oil. It does, however, signal the emergence of a new era in which oil companies' financial liability for climate change is coming to be more clearly understood.

Engineers at Carnegie Mellon University and Arizona State University concluded, in a 2011 study published in the Proceedings of the National Academy of Sciences, that conventional cars over their lifespan come with an average of $2,000 in costs related to greenhouse gas emissions. These costs, the researchers noted, are not borne by the drillers, refiners, distributors and consumers of oil, but by taxpayers in general, who bear the brunt of the financial consequences that manifest months, years and decades later. Yet no mechanism currently exists to pay for this massive economic liability for climate change. 

Of all developed countries, Americans pay the least, by about half, for their gasoline; a $4 per gallon price at the pump looks more like $8 in Germany and much of Europe. That extra amount partly consists of environmental taxes, which are used to mitigate the pollution and public health impacts of oil, to help pay for government-subsidized research into technologies to reduce the environmental footprint of fossil fuels, and to provide more generous social services. 

In the United States, the gasoline tax essentially has shrunk since 1993, when President Clinton, egged on by Vice President Al Gore, pressured Congress to increase the gas tax to 18.4 cents per gallon. But environmental taxes in general account for just 0.8 percent of GDP in the U.S., compared with 2.4 percent in Europe, according to the Organization for Economic Cooperation and Development (PDF). That 1.6-percent difference would provide the U.S. government with about $240 billion annually in extra revenue, some economists have noted — a portion of which could be used to adapt to and mitigate the monumental costs of climate change. 

Of course, that would require setting a price on carbon. Yet with the exception of localized efforts at carbon pricing in California and, to a lesser extent, a small group of states in the Northeast, the United States so far has proved unwilling or unable to do this. 

For the oil companies, then, tallying up the costs of climate change amounts to a registry of risk — and the costs acknowledged by ExxonMobil and other oil companies are, in the words of one energy analyst, "a proxy for future climate policy." While the politics have stalemated in Washington, ExxonMobil, for example, is not assuming it always will be that way. Exxon's carbon price can be seen as a hedge against the recognition that, at some time in the future, it will be time for big oil to begin paying for the full range of costs associated with its product.

"What happens to fossil fuel companies," said Mark Trexler, CEO of the Climatographers, a consulting firm that works with companies to identify environmental risks, "when you have two Katrinas and 23 tornadoes and the world wakes up and finally imposes a meaningful price on carbon?" To not pay attention to such risks, he said, would amount to a dereliction of fiscal duty. 

"If they're not thinking about a future business model in which they're forced to internalize the costs of climate change, then they will be compromised in their ability to deliver energy services in the future," said Mikhail Chester, a researcher at Arizona State University and an author of the paper estimating the life cycle greenhouse gas costs of automobiles.

Those costs and risks are reflected in data compiled by Bloomberg, the biggest financial information provider in the world. One of the company's latest additions is a Carbon Risk Valuation Tool (PDF), a computerized set of environmental threats associated with fossil fuel and other extractive industries. For the first time, investors can toggle between two sides of the bet on fossil fuels: Choose one tab and you get a company's financial performance; choose another and you get its greenhouse gas emissions and the risks that new regulations, in the United States and other countries, could leave the company's assets untapped and underground. 

"We believe the day will come when you have full-cost accounting," said Curtis Ravenel, who helped conceptualize and design the system as the Global Head of Sustainability Initiatives at Bloomberg. "We're taking those externalities and integrating them into [traditional] cash flows and the price and earning ratios." 

The tool is set to a series of defaults that can be adjusted depending on the nature of the risk: What would happen if carbon is priced at $50 per ton in 2020, for example? Or at $20 a ton in 2030? What if a carbon price ensures that 80 percent of assets have to remain in the ground by 2030? This is the first time such metrics are integrated in ways that financial professionals can understand, allowing them to share information on risks that the oil companies themselves are integrating into their internal carbon price. 

Alan Jeffers, ExxonMobil's chief media officer, explained that the company's pricing of carbon is "a proxy price reflecting all the action the government could take to regulate the exploration, transport and processing of carbon fuels." In other words, it rises and falls based on a perception of political and public pressure for restrictions on carbon emissions.

Jeffers said that ExxonMobil has been calculating an internal carbon price since 2007, when it was far lower than it is today. The price, Jeffers said, was raised in 2009 when Congress looked likely to impose a cost on carbon through cap and trade, and it declined afterward. Now it's up again, he explained, reflecting the combination of forces impacting the risks and costs that oil faces in the marketplace: tightened mileage standards by the EPA; renewable fuel standards in California and other states; the talk from President Obama, the World Bank and others about a coming price for carbon; and rising public pressure for action on the climate. 

Exxon's internal carbon price varies widely around the world — a testament to the divisions that exist in how different countries are dealing with climate change, and which negotiators hope to resolve at climate talks in Paris in 2015. Jeffers said that the company's price of carbon is highest in the European Union, where a cap-and-trade scheme has been operating for nearly a decade and some nations are more strictly enforcing greenhouse gas limits. On the other end of the spectrum, the price is essentially zero in many parts of the developing world, where simply keeping the lights on is a priority and demands for political action on climate change have been more muted. 

Exxon's $60 per ton price — Jeffers said it recently has been revised upward to $80 — is far beyond any actual price in the U.S. market or anywhere else. In the three major carbon markets where those costs most clearly can be articulated — in Europe, California and, recently, in seven of China's most industrialized provinces — the price of carbon hovers around $10 a ton. One reason for the large difference, Jeffers said: "It's like buying a house. You need to overestimate your cable bill, your mortgage payments and all those other costs. We need to overestimate what could result from government policies."

Of course, the "house" in this case is the infrastructure of oil. And one of the most revealing aspects of the carbon pricing estimates being developed by Exxon and other oil companies is just how much they believe that even relatively high carbon prices will not fundamentally threaten their bottom lines. 

Even at $80 per ton, Jeffers said, none of Exxon's assets would be stranded. The company's own report to a group of shareholder activists in March asserted that the price would have to rise to between $150 and $200 a ton — more than 10 times its current estimate — to alter fundamental decisions about investing in oil. 

Whether it's $10 or $200 a ton, any discussion of carbon pricing still begs the question: Who pays? As noted by Severin Borenstein, an economist at the Energy Institute at the University of California, Berkeley's Haas School of Business, "If the price for carbon and the price [of oil] go up at the same rate, then the [oil companies'] profit margin does not change." 

Under most scenarios, the consumer will end up paying any carbon fees because the higher costs will be passed down to them at the pump. This is why what the government does with the revenue generated from carbon pricing is so important. If it is delivered back to consumers in the form of a rebate, or used to build better public transportation and fund research into cleaner energy sources, such revenues could offer significant public benefits. In addition, a price as low as $60 or $80 a ton could begin tilting people away from oil to other forms of energy. If drivers start switching to electric vehicles, for example, it will matter a great deal for Exxon's bottom line whether those electrons are coming from natural gas, in which Exxon also has invested heavily, or wind and solar, a sector where Exxon and other major oil companies so far have little footing. 

For now, however, Exxon doesn't see that as a realistic outcome. From its point of view, the company's market share remains steady with a price for carbon at $60 or $80 per ton because, as Jeffers put it, "Our forecasts suggest there is no viable alternative to oil." 

The challenge from a climate perspective, of course, is proving him wrong. 

Top image by Mike Mozart via Flickr.

How the Northwest is working to mainstream green chemistry

Ken Zarker

Since the Toxic Substances Control Act was passed in 1976, there has been a lack of national consensus on how to tackle hazardous chemicals. That’s meant that the states—individually and together—have taken the lead on solving global chemical policy issues like flame retardants, copper, phthalates and others.

It's particularly true here in the Pacific Northwest, where endangered salmon runs and declining populations of orca whales have given us very visible examples of the societal and environmental costs from poor policies. Washington’s state legislature has often been a frontrunner in pursuing chemical regulation – as have our nearby neighbors in Oregon and California. For many of us working to advance safer chemicals in the Northwest, it made sense for industry, researchers and educators to also take a collaborative regional approach to solving these problems.

Northwest Green Chemistry was created to connect those dots. It has tried to get ahead of regulation by working with industry to identify problems and putting those opportunities in front of researchers. As an independent nonprofit, Northwest Green Chemistry can bring the many stakeholders involved in chemicals management together on equal footing.

Often, those of us who work in hazardous materials management and sustainability will talk about “mainstreaming green chemistry” by getting companies to think about reducing or eliminating the use of hazardous chemicals when they are designing new products or processes. The ultimate mission of Northwest Green Chemistry is to ensure that, as people turn to green chemistry for answers, they’ll find the solutions and resources they need.

So far, this project is in its infancy as we talk with industry and academic groups to ensure that the opportunity we see can become a viable niche for us. We recently conducted a market survey to gather feedback on what services would be most valuable. We’re also working with academic institutions to sponsor trainings and, separately, developing curriculum for continuing education programs for professionals. We’ll take another step forward on Oct. 28 with a roundtable to gather national leaders and people from around our region.

Certainly, the talent and the drive are there – or, rather, they are here.

Northwest retailers are making strides on getting hazardous materials out of their supply chains. Manufacturers, such as the Outdoor Industry Association’s chemicals management module (CMM), are working together to share a common approach. COSMO BioRefinery is seeking to extract and sell cellulosic sugars and other biochemicals into an established market. There’s a tremendous amount of interest in reinvigorating the forest products industry via the Northwest Advanced Renewables Alliance (NARA) that is harnessing biomass for aviation biofuels and specialty chemicals. Rivertop Renewables of Missoula, Mont. just launched a new green chemistry division this month to specifically produce ingredients for consumer-based products.   

An amazing group of supporters has stepped up to serve on the board for Northwest Green Chemistry, including representatives from our region’s leading universities, manufacturers, and nonprofit organizations. Our group includes the kind of big thinkers and innovators that you need to stitch together an ambitious project like this.

What’s possible? Established centers such as the Toxic Use Reduction Institute (TURI) at the University of Massachusetts-Lowell and the Lowell Center for Sustainable Production show the impact a concerted effort can have. By bringing world-class thinking to bear on local problems, TURI has been able to have a national and global impact.

The Northwest has the same potential to lead the way, particularly on issues like alternatives to copper boat paint and eliminating PCBs in products .

The PCB issue hits especially close to home, since the toxic chemical builds up in the iconic orca whales that live in or visit Puget Sound. Although the chemical was outlawed years ago, polychlorinated biphenyls are present as a trace contaminant in many common pigments, particularly bright yellows and greens. Ultimately, this presents us with a grand challenge here in the Pacific Northwest to tackle toxics with green chemistry solutions. Northwest Green Chemistry is planning a technology symposium on green chemistry solutions to the PCB problem in 2015.

Our academic community is also stepping up. The Center for Sustainable Materials Chemistry (CSMC) at the University of Oregon is a focal point for producing the next generation of green chemists and sustainable chemistry. There’s also groundbreaking molecular toxicology research lead by Dr. Robert Tanguay at Oregon State University related to the health effects of chemical mixtures. His lab is using zebra fish to evaluate the toxicity of thousands of chemicals used in consumer products, which could lead to green chemistry innovation.

The University of Washington’s Professional and Continuing Education department will offer an online certificate program in green chemistry in 2015, giving professionals the opportunity to study the principles of green chemistry and then apply them in their workplaces.

As we lay the groundwork for our vision of green chemistry, we want it to reflect the needs and values of the Northwest. For example, the Washington Department of Ecology developed a new Alternatives Assessment Discussion Draft for use in Washington State based off the national guide created by the Interstate Chemicals Clearinghouse. The Washington guide will establish a recommended set of criteria for small- to medium-sized businesses seeking to advance the transition to safer chemicals.  

Earlier this year in the Idaho state legislature, the Health and Welfare Committee introduced a Senate Concurrent Resolution that encourages companies to avoid substances likely to be harmful and to substitute for safer alternatives wherever feasible.

None of this is to suggest that there are easy green chemistry solutions to the challenges we face in the Pacific Northwest. But it does show that there are solutions out there, economic opportunities and increasing numbers of people dedicated to solving those problems.

If you’re interested in these issues in our region, we encourage you to collaborate with Northwest Green Chemistry to see where we may find shared interests, concerns, or opportunities. Bring us your green chemistry challenges and let’s tackle toxics together.

Top image of cylinders by Olivier Le Queinec via Shutterstock