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September 6, 2008

Business and the Environment: The Challenge of Change

Terry Tamminen
Operating Advisor
Pegasus Capital Advisors

Imagine it’s 100 years ago. 1908. You’re starting an ice cream business. You plan to illuminate your new factory with gas lamps; store the ice cream in ice boxes, and deliver it to stores with a fleet of sparkling new horse-drawn buggies. To process orders faster than the competition, you will employ a flock of carrier pigeons to speed messages from stores to your factory and back.

Your young plant manager says, “Let’s use this new thing – - electricity – - to light the factory and to power this other new technology called “refrigeration”. Let’s buy horseless carriages powered by gasoline to deliver the goods. Let’s get one of these “telephone” things – - soon everyone will have them – - and take orders at the speed of sound.”

What do you do?

Today we are faced with the same challenge of change, but without the benefit of hindsight. The experiences from the turn of the last century however, show we can benefit from such monumental shifts. Today, that young plant manager would advise his boss to use solar and wind power on the roof of a certified sustainable building, taking excess clean electricity to convert water into hydrogen for powering the forklifts in the warehouse. He would suggest delivery vans that run on compressed natural gas, biofuel, or hydrogen and would register the greenhouse gas reduction from all of this, generating more revenue for the business by selling the credits. Of course he’ll probably make these suggestions in a text message from his PDA, so don’t look for a carrier pigeon!

The choices we make will have profound, long-term implications for the entire globe. You’ve probably never heard of Constantino Cruz. He was working in a tomato field near Shafter, California in July 2005, on a day when temperatures soared above 100 degrees F. This 25 year old healthy young man couldn’t keep up in the heat – - his heart stopped and he died. Did Mr. Cruz lose the race against climate change? Did the victims of Hurricane Katrina lose that race? While we can’t say that any one hurricane or heat wave is the result of global warming, we do know that these incidents are part of a trend of more intense, more long-lasting heat waves and destructive storms that are the direct result of our greenhouse gas emissions and the global warming that has followed.

You probably don’t know Diana Wrightson, one of two elderly women who bought Cliff House in Happisburgh, England 26 years ago, a 12 bedroom guest house with beautiful views of the North Sea near a lighthouse and sandy beaches. It has been protected from storms and the rages of the North Sea for decades by a simple sand and wooden berm, but the British government has decided that more violent storms and sea level rise – - the direct result of global warming – - will no longer make that possible and are abandoning maintenance of the sea wall. Ms. Wrightson will lose her home and business to the sea, to global warming.

Mr. Cruz and Ms. Wrightson are all victims of our insistence on putting a living room on wheels to get us to the supermarket; of our wasteful use of electricity; and of our stubborn refusal to generate power with something cleaner and more sustainable than flaming chunks of coal. We wager our environmental future on climate change and gamble our economic future on a shrinking supply of energy resources that are controlled by the few. Instead, we can solve the climate threat and strike a blow for economic freedom, indeed a genuine global democracy, by betting on something quite different.

Oil, coal, and nuclear companies have defined our past by focusing on things they control – - “elite fuels” – - but we can define our future by focusing on things that everyone can control. Everyone on earth has unfettered access to sunlight, wind, things that grow, moving water, or other clean renewable sources of energy. Businesses run on energy, so by democratizing our energy supply, we democratize our economy – - and teach the world how to democratize theirs.

It’s also the smart way to define our future. You could spend a billion dollars to build a coal fired power plant, or a similar sized solar or wind power plant. You will pay billions more over the life of the coal plant for fuel, but absolutely nothing for the fuel that powers the solar or wind plant.

Moreover, the coal plant will contaminate our waterways and fisheries with mercury, foul our lungs with particles that cause asthma in our children and literally steal years from the lives of our elders. It will spew greenhouse gases that will devastate the quality of our lives and devastate innumerable species of plants and animals. But the solar or wind plant will stand as clean, silent testament to our ingenuity, our economic shrewdness, indeed our commitment to a true democracy.

Instead, we can build a solid foundation for the economy of our children, indeed it’s like picking up $100 bills from the sidewalk.

For example, in California, Governor Arnold Schwarzenegger incentivized solar with his  “Million Solar Roofs” initiative, because jobs installing solar panels can’t be exported and solar power generates more than electrons – - it has created new products and businesses in the state while cleaning our air and reducing greenhouse gases. A recent survey showed every category of new home sales in the state had fallen dramatically during the current economic downturn, except homes with solar power, which have enjoyed an equally dramatic increase in sales.

Individuals and businesses are also discovering the economic benefit of going green, doing immediate, simple things that save money and reduce pollution, like changing light bulbs. A 75w incandescent bulb costs $10/year to own and operate in the U.S., while a comparable compact fluorescent costs about $3.50/year. Walmart estimates that if their 100 million customers each buy just one, it will save $3 billion – - that’s a lot of $100 bills waiting to be picked up.

Yes, change is hard, but the alternatives are fraught with even more peril. When the history books record the actions we will take in these next few years, will they say we embraced and profited from change? Or will they say we rode an old-fashioned horse and buggy into economic extinction?

Terry Tamminen is Operating Advisor to Pegasus Capital Advisors and the former Secretary of the California Environmental Protection Agency.

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