Why 'The 3% Solution' is 100 percent right

Two Steps Forward

Why 'The 3% Solution' is 100 percent right

A landmark study being published tomorrow by WWF and CDP aims to change the conversation in business about addressing climate change — primarily by showing how profitable it can be to do so.

"The 3% Solution: Driving Profits Through Carbon Reduction" (being released Tuesday via a GreenBiz.com webcast that I’ll be hosting) begins with a hopeful premise: that U.S. business can reduce carbon emissions sufficient to meet science-based goals for avoiding a 2°C rise in global temperatures. And do so while capturing hundreds of billion dollars in savings and  creating new business opportunities.

Sound too good to be true? Perhaps. But the WWF-CDP study is based on analysis from an impressive consortium of players, including McKinsey & Co., Deloitte Consulting, and Point380, a technical strategy firm that specializes in energy efficiency and renewable resources.

I’ve had the chance to preview the 32-page report and talk to the project’s leads at both WWF and CDP. It’s too early to know whether the promise of "The 3% Solution" will be fulfilled, but it seems clear that the report is engendering a new level of engagement and excitement in the two organizations. It stands to do the same in business.

With good reason: The conversation about climate in the United States has been largely political, not science- or business-based. It’s been mired, like so much else these days, in polarized camps that spew their own rhetoric and “facts” to bolster their already-hardened positions. Among the polarized arguments has been the macroeconomic one — that addressing climate change (if it really exists, and if humans really are causing it) would undermine the fragile U.S. — and global — economic recovery. That’s assuming the creation of carbon taxes or other regulatory mechanisms. In other words: government intervention.

WWF and CDP take a decidedly free-market approach. And they began with asking my favorite kind of question: What would it take to bring U.S. carbon emissions to where scientists say they need to be by 2020? And to compare that to where we are now in order to create a roadmap from here to there.

“To be quite frank, I thought this was going to be a story about a gap between where we need to be and how far we can get with a traditional business case,” Lou Leonard, Managing Director of the Climate Change Program at WWF, told me last week. “And lo and behold, where we’re at blew my socks off because we’re not talking about a gap. We’re talking about a consistent trajectory between what the business case says is possible and what the science says is necessary.”

The report is designed to help elevate and amplify the alignment between science and business. In order to bolster the work done by the two nonprofits themselves, WWF and CDP brought in McKinsey and the other analysts to help. Says Leonard: “We relied very much on McKinsey’s cost curves and experience of working with companies in addition to our own.”

The conclusion: In order to stay below 2°C, the U.S. corporate sector must reduce total annual greenhouse gas emissions by 1.2 gigatons compared to 2010 levels — the equivalent of approximately 3 percent emissions reduction per year. There is another gigaton savings possible through emissions-reduction opportunities from utilities, consumers and supply chains, say the authors.

Together, the 2.2 gigatons of CO2 equivalent (a standard metric for combining multiple greenhouse gases) are almost double what is required to meet the 2020 minimum target set by the Intergovernmental Panel on Climate Change.

The analysis concluded that WWF-CDP's “3% solution” can create a present value of net savings up to $190 billion in 2020 for U.S. companies, excluding utilities. Between 2010 and 2020, the net present value could be as high as $780 billion.

How do we get there? The report breaks it down into specific actions, investments and targets. I’ll save those details for the report launch (and the webcast).

“What the report is really good at is identifying that the problem isn’t cost — that there are significant commercial opportunities to do something about it,” says Tom Carnac, Managing Director, North America, at CDP. “What we spend a significant proportion of the report doing is identifying the barriers, and we break those down and think about how to overcome the different obstacles, which tend to be more institutional than financial. They tend to be more about ways of working and the fact that companies are built to pick up certain types of opportunity and not other types. But as we enter a world where it’s going to be more difficult for companies to be resource inefficient and still be competitive, that mindset is going to have to shift in senior leadership of corporations.”

Shifting mindsets is a key part of the solution. After all, for all of the technology, processes and designs that already exist for creating a less carbon-intensive world, it’s ultimately about getting people to change.

“This is a human problem in a sense,” says Leonard, “and it happens at multiple levels within companies. It happens at the top in terms of the leadership and the willingness to relook at some of the internal benchmarks that are used for the expenditure of capital. It’s also a different mindset at the operational level in terms of how do you look differently at the way you operate, whatever your business happens to be.”

One big challenge, say Leonard and Carnac, is that most people today, including business executives, feel stuck — paralyzed, even — unable to effect change. They feel that their efforts are too small, relative to the scope of the problem. Says Leonard: “We want the conversation that we hope to germinate within the private sector to help break through the larger sense of stuckness — that ‘We can’t do it’ — that permeates the conversation in Washington about climate change.

I’ll be watching closely the impact of "The 3% Solution." It may not be the first study to present “the business case” for aggressively addressing greenhouse gas emissions, but it’s the first to make such a detailed and positive business case for doing so. The report is about as business-y as it gets: cold, hard-headed figures that, one hopes, will foment a healthy conversation with the CFO, among others.

As WWF and CDP make abundantly clear, that conversation had better happen fast. As they note in the report, starting soon will enable companies to capture the massive savings the report says is available — yet waiting will make the climb that much steeper. “Waiting until 2020 to start the journey would be costly for companies and the climate,” they write, “requiring a 9.7 percent reduction annually to meet the 2050 target. Waiting until 2030 is not an option; the 2°C target would be out of reach.

I asked CDP’s Carnac if the report made him more hopeful about the climate: “It only remains a hopeful message if we have no further delays,” he replied. “We have to act really soon for this to remain a hopeful message. If we leave it for 10, 15 years, it becomes quite different.”

The report will be launched during a free webcast on June 18 at 1 pm Eastern Time. To register, click here.