Energy Shock to Trance, and Back Again: An Advisory Notice
In mid-2008, then-presidential candidate Barack Obama, referring to our national habit of focusing and then neglecting energy policy, said that America had a habit of going from ‚Äúshock to trance‚ÄĚ when it came to energy and energy prices.¬† Well, batten down the hatches, because with widespread concerns over skyrocketing gas and oil prices, it‚Äôs looking like shock time again‚Ä¶
The past four weeks represent the beginning of yet another period of great uncertainty in oil prices and the future of energy prices more generally.¬† Businesses and other large organizations ignore the energy implications of the turmoil in the Middle East at their own peril. At Hara, we have broad visibility into a wide cross-section of organizations around the world and our customers have already seen impacts from the storefront to the board room.
Everything from consumer behavior and disposable income to logistics and operational expenses are beginning to shift.¬† While it is still to be determined if this will significantly hamper the economic recovery, it will give significant advantages to those who pay attention and react appropriately.
Concern over global warming remains high, but the reality is that there are multiple compelling drivers that are pushing energy and new waves of cleantech innovation to the forefront as a leading business concern. These include:
o¬†¬† Cost savings ‚Äď Almost all major industries, including services industries, are now clearly focused on how booming demand and dwindling supplies will be driving up the long-term costs of energy for the foreseeable future.¬† This concern isn‚Äôt limited to the business world ‚Äď it accurately describes the energy crunch facing big cities and booming regions, like Abu Dhabi.
o¬†¬† Risk Management ‚Äď The volatility in core commodity prices remains high and there is, at best, murky visibility on how to steady any given organization‚Äôs energy strategy. ¬†Existing sources of energy are in flux.¬† New sources and technologies still face a bumpy road forward so that, although they are essential, it is harder for managers to reliably turn to them.
o¬†¬† Value Creation ‚Äď For the reasons cited above and others, consumer and corporate attention to energy and greenhouse gasses remains quite high, and where there‚Äôs attention, there‚Äôs market share.¬† Companies are finding ways to tap new markets and build new customer aggregations based on their ability to deliver goods and services that save energy and money.
o¬†¬† Politics ‚Äď At least in the US, there‚Äôs an emerging consensus that energy efficiency and conservation will be an area for bi-partisan cooperation and legislative focus.¬† Maybe, just maybe, there is a chance that the days of ‚Äúshock to trance‚ÄĚ can be put behind us.
This rolling crisis is putting to rest the illusory image of a slowdown in cleantech and energy innovation.¬† With these core drivers remaining in place and current events starting to accelerate them, look for renewed visibility for cleantech companies, and disruptive new patterns ¬†in energy innovation as things that have lain dormant re-awake in new, post-recession configurations.
What can these disruptive patterns look like?¬† One pattern involves rethinking global supply chains.¬† As much concern as there has been about how China cut off Japan‚Äôs supply of rare earth minerals last year, it pales in comparison to the disruption in supply chains being experienced as a result of the earthquake and tsunami in Japan.¬† Both events have affected energy supply, directly through the ramifications for oil, nuclear, and other energy prices, and indirectly, for example, through the limited supply of key parts from Japan for wind turbines.¬† A number of new companies and alternative processes were already mobilizing around the rare earth shortage to make wind turbines using different materials as well as to recycle existing product to increase the overall availability of turbines.
Another type of pattern involves fundamentally transformative business models, like Walmart‚Äôs recent Site-to-Store program which bypasses traditional online purchasing to drive customers to more online shopping and more store presence at the same time. The jury‚Äôs still out on the overall energy implications of this program, but I‚Äôd wager that it reduces the overall delivery footprint for Walmart.
So, while there‚Äôs no question that the energy economy is clearly headed back to ‚Äúshock,‚ÄĚ by optimizing energy and natural resource flows, companies can turn this risk into an opportunity.¬† Successful companies will figure out how to grow their own recoveries while reducing their exposure to energy prices and energy supply risks (that even extend to companies upstream in their supply chains).¬† The real winners will be those who extend the creativity that has carried them through these tough times to the energy domain ‚Äď those who find a way through the shock and back to just plain old paying attention.
Michel Gelobter is Chief Green Officer at Hara and one of the country‚Äôs leading sustainability and climate strategists, having worked for more than 25 years in business, policy, research, and advocacy on energy, environmental, and social policy. Michel is Founder and Chairman of the Board of Cooler, a for-profit social venture whose mission is to connect every consumer purchase to a solution for global warming. Prior to Cooler, Michel was President of Redefining Progress, the think-tank that helped design the world‚Äôs most aggressive climate legislation which was signed into California law in August of 2006. Michel also founded and directed the Environmental Policy Program at Columbia University, worked as a Congressional Black Caucus Fellow as well as for the U.S. House of Representatives Energy and Commerce Committee, was Director of Environmental Quality for the City of New York, and served as an Assistant Commissioner for its Department of Environmental Protection. He is also a board member of the Natural Resources Defense Council and Ceres.
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