AFG Venture Group Dispatches

Corporate advisory and consultancy in Australia, South East Asia and India.

Technology, Engagement, Global Warming and the Green Economy – Karl Schutte, Associate, Head of Sustainable Enterprises, AFG Venture Group

When computers were first used they were a separate part of people’s lives. Computer labs existed as islands of technology that one ventured into either at the workplace or in institutions of learning and later also at home after the introduction of personal computers. Today the use of technology is not something separate or special; mobile phones, notebooks, smart phones, tablets, e-readers or similar devices are part of everyone’s lifestyle and culture (Lipincott & Gibson 2006). Notebooks have become places of work in themselves as many businesses are now run almost exclusively from a notebook computer and a phone. With this ubiquitous technology we can access information about anything, and speak to anyone using a video link programme almost anywhere on earth. We can check on our stock portfolio, bank account and loan balances and calculate our net worth at any time, and we are almost seamlessly connected with everyone and everything. The companies and individuals who have been the most innovative in facilitating this hyper connectedness have made billions of dollars. The most visible individuals and companies being Bill Gates and Microsoft, Larry Page and Sergey Brin and Google, Mark Zuckerberg and Facebook and Steve Jobs and Apple. Apple recently became the most valuable company of all time with a market capitalisation according to Google Finance on 23 August 2012 of U$ 627 billion, having overtaken the next most valuable company Exxon Mobil (U$ 405 billion) more than a year ago. Not only are/were the abovementioned individuals extremely wealthy from their innovation, millions of others have benefited from holding these stocks individually and in their superannuation portfolios and 401k’s.

Despite all this enabling technology most of us remain unaware of our personal or corporate impact on the earth’s environment and biodiversity.

Recently Bill Mckibben the well published American environmentalist wrote a most interesting piece in the Rolling Stone magazine titled Global Warming’s Terrifying New Math. (Mckibben 2012). Mckibben brings together three pieces of information which gives one pause for thought.

Firstly, despite the failure to reach a comprehensive global agreement on emissions reductions at Copenhagen in December 2009, global leaders representing countries responsible for 87% of global emissions, did agree to limit the temperature rise from anthropogenic emissions to 2 degrees Celsius above preindustrial levels. To date temperatures have rise approximately 0.8 degrees Celsius. Prominent climatologist and NASA scientist James Hansen amongst others, regards this level of warming as a “prescription for long term disaster”. He gives examples of low lying islands disappearing with the rise of seal levels, and this level of warming being a “suicide pact for drought stricken Africa”.

Secondly, climate scientists have calculated that the amount of CO2 from fossil fuel sources that humans can emit into the atmosphere in order to remain within the 2 degree Celsius warming limit is approximately 565 gigatonnes (“CO2 budget”). According to the International Energy Agency, (“IEA”) in 2011 global emissions were 31.6 gigatonnes up 3.2% from 2010. At the expected annual growth rate of CO2 emissions of approximately 3%, the CO2 budget will be exhausted in 16 years. (hold that thought). So babies born today will be graduating from high school into a world that is required to emit zero CO2 emissions if temperature rises are to be kept below 2 degrees Celsius.

Thirdly, according to the Carbon Tracker Initiative (Carbon tracker, 2012) all of the proven reserves  (yes proven reserves) of fossil fuels – oil, coal and gas owned by private and public companies and governments are equivalent to 2,795 gigatonnes of CO2. This equates to 5x the CO2 budget. These proven reserves have been factored into share prices, companies are borrowing money against them and nations are basing their future budgets (Australia being no exception) on the presumed returns from this fossil fuel bounty. The value of these reserves are estimated at $27 trillion. Our personal and superannuation fund portfolios are heavily invested in companies whose value is based on these reserves. If we are to keep within the CO2 budget, then 80% of these reserves (valued at approximately $20 trillion) have to remain in the ground.

It appears that either we can limit global warming to 2 degrees Celsius (which already appears to be a very dangerous level) and see the destruction of shareholder and sovereign wealth of approximately $20 trillion. Or, we can preserve that wealth and see temperatures climb by up to 6 degrees Celsius (which is the trajectory we are on according to the EIA, based on current fossil fuel consumption levels and projected growth) with disastrous consequences.

We cannot achieve both!

Business as usual will take us to that unimaginable future of warming of up to 6 degrees Celsius. There is an alternative to business as usual, and that is the Green Economy.

The United Nations Environment Programme (“UNEP”) defines the green economy as one that:

“results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. In its simplest expression, a green economy is low-carbon, resource efficient, and socially inclusive. In a green economy, growth in income and employment are driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, and prevent the loss of biodiversity and ecosystem services.” (UNEP, 2011)

Milani (2000, pg 183) defines the green economy as one that integrates environmental and social costs into all economic decision-making and one that links scales from neighbourhood to planet so individuals understand the local, regional and planetary affects of their economic and other decisions.

The Green Economy covers three broad areas namely:

  • A low carbon resource efficient economy;
  • A socially inclusive economy, and
  • An economy that protects biodiversity and ecosystems services.

The move to a low carbon resource efficient economy presents an incredible opportunity for economic growth generated by renewable energy and energy efficiency opportunities. Part of the difficulty of moving to a green economy is the perception that this entails shrinking the economy and therefore reducing growth. Lovins & RMI (2011, pg  237) describes a low carbon resource efficient future economy for the USA relying on renewable energy  as one of incredible abundance with a gross $10 trillion benefit (just for the USA) over 40 years in energy savings alone and a further $5 trillion invested in clean technologies allied with a significant increase in decent jobs. Lovins describes this move in an almost poetic way:

“The fossil fuel party is drawing to a close. It’s time for something completely different. What might the new fire look like? The old fire was dug from below .. was scarce….was  local…. was transient. The new fire flows from above.. is bountiful …. is everywhere… is permanent..and  flameless- providing all of the convenient and dependable services of the old fire….”  (Lovins & RMI 2011, pg  XII ).

In July Munmorah power station on the NSW Central Coast announced it was shutting down, citing the Carbon Tax as one of the reasons. The real reason is the fact that there has been a significant uptake of solar photovoltaic installation across the Eastern Seaboard of Australia. We currently have 1.4 GW of installed capacity. This massive installed solar energy capacity has reduced demand especially at peak times during hot days resulting in Munmorah being unable to compete with more efficient coal fired power stations on the East Coast. In 2011 Australia installed more residential solar systems (photovoltaic panels and rooftop solar hot water systems) than any other country. (Climate Spectator 2012)

A socially inclusive economy means more jobs. That means better education and growth in jobs. Weekly the headlines reflect the job losses in the shrinking side of our two speed economy. According to a study by Kammen et al renewable energy technologies employ far more people than fossil fuel energy technologies as set out in table 1. 

Table 1.   

Estimated Employment per Megawatt (MW) of Renewable and Fossil Fuel Energy Plants  

Average Employment over the life of the Facility (Jobs per MW of average capacity

 

Manufacture, Construction and Installation

Operations, Maintenance and Fuel Processing

Total

Solar PV

5.76 – 6.21

1.2 – 4.80

6.96-11.01

Wind Power

0.43 – 2.51

0.27

0.70 – 2.78

Biomass

0.40

0.38 – 2.44

0.78 – 2.84

Coal Fired

0.27

0.74

1.01

Natural Gas Fired

0.25

0.70

0.95

Source:  Kammen et al 2006.

Currently solar energy represents less than 1% of our energy mix with renewable energy in total representing less than 8% of our energy generation so the growth opportunities are massive.

Protecting biodiversity and ecosystems services presents a massive opportunity to generate economic growth whilst preserving and enhancing our natural system’s abilities to provide ecosystem services such as clean water, fresh air and more fertile soil.

Initiatives to convert organic household waste into compost and avoid it going to landfill (where it produces methane emissions) represents a huge opportunity for waste collection services, compostable plastic production and management systems and organic fertiliser production. These initiatives are currently in their infancy but the opportunities are vast. The number of companies that provide efficient water systems, business models and technologies have grown exponentially in response to dealing with Australia’s dry climate. The opportunity in storing carbon in soil through biochar and planting more trees to gain carbon credits capable of being retired against carbon taxes and permits is huge.

This article has only touched on the opportunities in the green economy. The destruction of value in fossil fuel securities necessary to keep global warming within a hopefully manageable level of 2 degrees Celsius is capable of being dwarfed by the value creation opportunities in the green economy. The green economy is still in its infancy but so was Apple Inc at one stage and it was being operated out of a garage. Look at Apple Inc now.

Welcome to perhaps the greatest growth market!

” Only when companies begin to operate with the knowledge that creating a better world is a profitable venture can we really move forward” – (Steffen, 2011 pg 351).

References

Carbon tracker 2012, Accessed 23 August 2012, http://www.carbontracker.org/carbonbubble

Climate Spectator 2012, Accessed 23 August 2012,  http://www.climatespectator.com.au/commentary/how-turnbull-transformed-solar-pv

Kammen, D.M.  Kapadia, K. and Fripp, M 2006, Putting Renewables to Work: How Many Jobs Can the Clean Energy Industry Generate? RAEL Report, University of California, Berkeley.

Lovins, A. and Rocky Mountain Institute (RMI) 2011, Reinventing Fire- Bold Business Solutions For The New Energy Era, Chelsea Green Publishing Company, White River Junction, Vermont, USA.

Lippincott, J.K. Gibson, C. (ed) 2006, Learning, engagement and technology, Engagement and Information Literacy, Association of College and research Libraries, Chicago.

Mckibben, B. 2012, Global Warming’s Terrifying New Math, Rolling Stone Magazine, Accessed 23 August 2012, http://www.rollingstone.com/politics/news/global-warmings-terrifying-new-math-20120719.

Milani, B. 2000, Designing the Green Economy : The Postindustrial Alternative to Corporate Globalization, Rowan & Littlefield Publishers, Maryland, USA

Steffen, A. (ed) 2011, World Changing, A User’s guide for the 21st Century, Abrams, New York.

United Nations Environment Program  (“UNEP”) 2011, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, Accessed 23 August  2012, www.unep.org/greeneconomy.

About the Author

Karl Schutte heads up the Sustainable Enterprises team at AFG Venture Group providing strategic advice to and raising capital for companies engaged in clean technologies and sustainable initiatives. Karl has spent the past 15 years in the investment banking industry and is a Chartered Accountant having completed a B Comm. Honours, an MBA and a Masters of Environmental Management.

Karl Schutte, August 2012