Resource Efficiency 2.0

In 1972 the Club of Rome published its controversial “Limits to growth” report. The authors concluded that “If the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next one hundred years”. At our home and school the report was widely discussed. The Club of Rome started a first wave of consciousness about the environment and the threat of gradually depleting resources. The following year, in reaction to the West's support of Israel in the Yom Kippur war, the OAPEC stopped supplying oil to these countries, which led to a huge increase in oil prices and ultimately an economic recession. In Holland many belt-tightening measures were introduced. The best of these was the “car-less Sunday”, which allowed us to rollerblade on the highway. In the US the Government launched a conservation program, called ''Don't Be Fuelish,'' urging the public not only to use less gasoline, by reducing the speed limit to 55 miles an hour (yes that's the explanation), but also to cut back on heating and air-conditioning. Shortly after being elected in 1977, President Jimmy Carter, sitting fireside in a beige wool cardigan, told the nation to “tighten our belts, turn down the heat and wear a sweater”. We were asked to reduce, reuse and recycle. Emission standards for cars were set, waste was being sorted for recycling and “green” political parties were founded to pursue an environmentally and ecolologically responsible agenda. The first wave of resource efficient products hit the market in the late seventies. Then it went quiet.

Decades later, in 2006 Al Gore's Oscar/ Nobel Prize winning An Incovenient Truth made an impact on virtually everyone who wanted to listen. The documentary warned us, in a much better researched and packaged presentation than “Limits to Growth”, that the end is neigh: “Humanity is sitting on a ticking time bomb. If the vast majority of the world's scientists are right, we have just ten years to avert a major catastrophe that could send our entire planet into a tail-spin of epic destruction involving extreme weather, floods, droughts, epidemics and killer heat waves beyond anything we have ever experienced. “ Tom Friedman published “Hot, Flat and Crowded”, a call to arms to deal with the challenges and opportunities of global warming, growing population and expanding middle class. Darn...even George W. Bush pleaded with Americans to conserve gasoline by driving less and issued a directive for all federal agencies to cut their own energy use and to encourage employees to use public transportation. And this week Obama said that the US must move quickly to develop clean and innovative sources of energy after years of delay. "We've seen enough. We can remain the world's leading importer of foreign oil, or we can become the world's leading exporter of renewable energy."

Nowadays the concept of “sustainability” has full credibility, almost to a point of becoming fashionable (like Jimmy Carter's cardigan ). We have come to learn about sustainable development, housing, agriculture and even the sustainable South Bronx. The facts are that “the average American generates about 15,000 pounds of carbon dioxide every year from personal transportation, home energy use and from the energy used to produce all of the products and services we consume”. The energy consumption of the average American is almost twice that of a German and three times that of a Pole. Playing on people's conscience may help change behavior. We can trade in our SUVs (disclosure: I am driving a Lexus Rx400h), turn off some lights and empty the jacuzzi (the biggest consumer of electricity). The real change though will come from solutions that not only address these huge issues, but make business sense as well. And there is light on the horizon. Huge companies like General Electric and IBM have developed solutions for the “smart grid”. Highly entrepreneurial green enterprises are getting substantial investor attention. Examples are companies like Better Place, which has launched a new businessmodel for electronic cars, or Tendril, which develops smart grid software.

Infomation Technology is at the heart of the solutions that aim to optimize our scarce resources. IBM claims that “if the U.S. grid alone were just 5% more efficient, it would be like permanently eliminating the fuel and greenhouse gas emissions from 53 million cars. Billions of dollars are wasted on energy that never reaches a single lightbulb.” Tendril has a solution that uses smart plugs containing sensors. A transceiver sends information about energy consumption and patterns. The data gets analyzed and instructions are sent back to the the plug to switch the appliance on or off. This can easily save 10-15% in power consumption at the home or office. Every kilowatt saved in the home saves three at the generating station. Even Google has stepped into the game with their PowerMeter doing what they do best: collecting information, applying analytics and providing users tools to make decisions to reduce energy consumption. Rolls Royce now tracks the performance of 3,500 jet engines around the world in real time, as data is beamed satellite to the company's control room. By analyzing the data it has steadily improved fuel efficiency and over the past 30 years has extended the operating life of engines tenfold. These systems are fairly straightforward control loops: gather the data, analyze it and adjust the settings.

CK Prahalad suggests that government, civil society and companies collaborate to tackle this new phase of resource optimization. The government should contribute with focused investments and regulation, civil society with ideas and grass root approaches and companies with the entrepreneurial and operational capabilities to create commercially viable products. There are big opportunities to improve the supply chains of WalMart (importing over $20Bn in goods from China alone each year) and other large retailers from a green perspective, applying concepts like reverse logistics and extended supplier responsibility. Civil society should look at Walmart as a potential ally rather than a big bad capitalist.

But Sharon Begley writes in this week's Newsweek: “while you're doing all that to reduce the world's energy use and cut emissions of greenhouse gases, keep this in mind: even if we scale up existing technologies to mind-bending levels, such as finishing one nuclear plant every other day for the next 40 years, we'll still fall short of how much low-carbon energy will be needed to keep atmospheric levels of carbon dioxide below what scientists now recognize as the point of no return.” We need profound breakthroughs. Money should flow to where we have the highest chance of finding these and bringing them rapidly to industrial scale. This should be the number one priority after the financial system is cleansed.

By the way, don't forget to turn the lights off for an hour on Earth Day

Have we hit rock bottom?

We are all standing in amazement how fast and furious the decline has set in. No corner of the globe is spared. In China factories stand empty and twenty million workers got on the train back to the rural villages they fled years back. Once looked upon as economic miracles, the illustrious duo Iceland and Ireland have nose dived and are facing double-digit contracting economies. PIGS (Portugal, Italy, Greece and Spain) cannot fly and these countries came crashing down. Many large banks, including the financial behemoths Citgroup and RBS, bastions of capitalism, have been taken over by national governments in a desperate effort to keep liquidity in the economy. Large companies are collapsing under their own weight. Household names like Circuit City disappeared and the GMs of this world will shortly cease to exist (but not before burning billions of federal aid). This must be a wake up call. As Tom Friedman writes in the NY Times: “ What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall — when Mother Nature and the market both said: No more. “

It is the time for creative reconstruction. Most companies become conservative in the face of a downturn. They focus on relentless cost cutting and stop “discretionary spending” on innovative projects. While that may be necessary to remain afloat, at the same time new products and business models should be pursued. Like the famous Dutch soccer coach and philosopher Johan Cruijf (Holland's own Yogi Berra) proclaimed: “Every disadvantage also has an advantage”. Instead of putting moribund companies on life preservers, stimulus should be directed to “sustainable” innovation, aimed at long term growth without depleting the globe's rapidly diminishing resources. In a downturn, more than ever, should we get entrepreneurial instead of risk averse. We need agile local businesses in large global networks instead of huge, heavy weight multi-national companies.

I attended a round table with CK Prahalad last week to discuss sustainable solutions for a planet in distress. As a staunch believer in the positive forces of capitalism he pointed out the opportunities of green solutions, such as “extended producer responsibility” or “reverse logistics”. These concepts look at extending the life cycle of products and giving the producer responsibility from cradle to grave. So, old PCs or cars will be returned to the manufacturer who can re-use and recycle. Tom Friedman has been writing regularly about the need for the US to be become a global leader in green energy. Buildings, cars and appliances will be equiped with networks of sensors that continuously monitor resource usage to optimize and replace parts in time. New business models will be built around true resource optimization.

You can not regulate yourself out of a recession. Nor will unfocused stimulus have the required effect. Money has start flowing to the companies that have the entrepreneurial and innovative capability to create long term wealth, while doing good. Economic nationalism and protectionism, fanned by populist slogans such as “Buy American” or “British jobs for British Workers”, are counterproductive and will prolong the recession. The limitation of H1-B visas as part of the bail-out is an economic blunder. Half of Silicon Valleys companies are founded by entrepeneurs born outside the US. Globalization has helped emerging economies to charge ahead and create a large middle class, which in turn fuels the global economy.

We clearly need a jump start, but the engine will keep sputtering and it will surely die again if we give in to conservative, myopic impulses. Money thrown at dying industries is unrecyclable waste. The future is in solutions that not only turn the global economy around but also the earth's decline.