It's Not Easy Being Green

Ben Elgin has an important story in this week's Business Week about carbon credits, green companies, and the realities of the marketplace. It's centered on Auden Schendler, an alumnus of the legendary Rocky Mountain Institute, who was hired in 1999 by Aspen Skiing Company to be their in-house "corporate sustainability" advocate. Now, eight years later, he's disillusioned: even his money-saving ideas have often gone nowhere, and his company's carbon footprint hasn't been appreciably reduced; in fact, it's only gone up. Instead of concentrating on its own emissions, Aspen Skiing has is spending $42,000 a year on renewable energy credits, or RECs, which allow it to claim to be "carbon neutral".

It's hardly alone in the use of these things, which really do have the feel of old-fashioned papal indulgences. The carbon footprint of Staples, for instance, has gone up by 19% since 2001; thanks to buying RECs, however, it claims a 15% decline. In the case of Johnson & Johnson, the figures are +24% and -17% respectively.

RECs are dirt cheap: they cost about $2 per megawatt hour, compared to the $51 per megawatt hour that clean energy producers receive for their electricity. (You can add tax breaks and other inducements on top of that: Elgin does, to get a total value of $91 per megawatt hour of clean electricity.) At $2 per, RECs are not going ton induce anybody to build more windmills. And if buying RECs doesn't cause more windmills or other clean-energy sources to be built, what's the point of them as anything other than a public-relations exercise?

Now it is possible to fund new clean-energy projects directly, rather than buying something abstract like a REC. Yahoo, for instance, is claiming carbon neutrality by paying for a hydropower project in Brazil and wind turbines in India.

But even Yahoo, with its pledge of complete transparency and its energy conservation program, isn't exactly bragging about whether or by how much its own carbon footprint has been reduced. I'm glad that Brazil and India are getting clean energy in areas which really need it – but I'm still not entirely clear on how that fact makes Yahoo "carbon neutral".

Meanwhile, companies seem to have all manner of reasons why it doesn't make sense for them to reduce their own carbon emissions directly. This story is particularly depressing:

Thwarted on guest rooms, Schendler switched to Little Nell's underground garage. Guests never saw it because valets park all cars. For $20,000, Schendler said he could replace energy-gobbling 175-watt incandescent light fixtures with fluorescent bulbs and save $10,000 a year. Unimpressed, Calderon again balked. If he had $20,000 extra, he would rather spend it on items guests would notice: fine Corinthian leather furniture or shiny new bathroom fixtures...
It took Schendler two years to overcome resistance to the garage-light replacement, and then only after he secured a $5,000 grant from a local nonprofit. He acknowledges the strangeness of a corporation with annual revenue of about $200 million, according to industry veterans (the company declines to provide a figure), seeking charity to reduce its electricity use. With a hint of sarcasm, he notes: "This is the sort of radical action that's needed to get people over ROI thresholds."

I have a feeling that the problem isn't ROI threshholds, so much as the idea that money-saving schemes like this, no matter how green they are, will always save money at best: they'll never generate growth in the company. An Aspen vice-president is quoted in the article as saing that "the availability of capital is not infinite," with the implication that it should be targeted first at growth areas, and only as a secondary measure at green money-saving projects.

Here's another example:

In 2003, FedEx announced that it would soon begin deploying clean-burning hybrid trucks at a rate of 3,000 a year, eventually sparing the atmosphere 250,000 tons of greenhouse gases annually from diesel-engine vehicles...
Four years later, FedEx has purchased fewer than 100 hybrid trucks... "We do have a fiduciary responsibility to our shareholders," says environmental director Mitch Jackson. "We can't subsidize the development of this technology for our competitors."

So being a leader in green technology is now tantamount to subsidizing your competitors. Call it last-mover advantage. At this rate, we'll never get anywhere.