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Kyoto and Sustainable Business (02/20/05)
Gil Friend, 20 Feb 05

Gil Friend is a systems ecologist and business strategist, and is the CEO of Natural Logic, an environmentally-focused strategy, design and management consultancy. He writes a regular blog on issues of business and the environment. Gil has agreed to write occasional essays on sustainable business for our Sustainability Sunday feature, and we are happy to add his voice and perspectives to our site. Take it away, Gil:

The Kyoto Protocol took effect this week, and as I wrote in my blog, it did so "with 141 countries signed on. [...] Some are more consequential than others. Some, under the terms of the treaty, won't have to do much of anything. (China and India, for example -- a situation that won't last forever.) Others -- like the EU -- are On The Move. The US government may sit this out (for now), but smart US companies -- at least those that want to trade in Europe, be competitive against European companies, and respond to customer expectations (that will only become more insistent as consequences of global warming become more evident) -- will ignore their own government and get with the program."

The New York Times reported Mixed Feelings as Treaty on Greenhouse Gases Takes Effect (By MARK LANDLER, February 16, 2005): "It is bad enough, in [the Europeans'] view, that American and Chinese companies will not bear these extra costs. But worse, the ultimate goal of curbing greenhouse gases will not be realized because carbon dioxide emissions, unlike polluted rivers, are a global rather than a local problem."

The China omission will come to be seen as increasingly important, I believe -- especially since, according to the World Policy Institute report issued this week, China is replacing US as world's leading consumer.

Although the United States has long consumed the lion's share of the world's resources, this situation is changing fast as the Chinese economy surges ahead, overtaking the United States in the consumption of one resource after another.

"Among the five basic food, energy, and industrial commodities--grain and meat, oil and coal, and steel--consumption in China has already eclipsed that of the United States in all but oil.

The US generates a fifth of the world's greenhouse gases; the rapidly growing economies of China and India "already account for 14 percent of the world's total." (NYT) That's more than one-third of the total, by my math.

Not that China is ignorant of sustainability drivers -- far from it -- but the sheer scale of, well, everything there is strong encouragement to keep the Ehrlich-Holdren equation front of mind. Paul Ehrlich of Stanford University and John Holdren of the University of California proposed, some years ago, that environmental impact of societies could be understood as a function of population times affluence times technology: I = P * A * T. All other things being equal, more people, with more money to spend on more technology will yield more environmental impact.

All other things aren't equal, fortunately, since "technology" is a many-vectored thing. I think it was Ray Anderson of Interface who proposed modifying the equation thusly: I = (P * A * T1) / T2, proposing that "sustainable technology" could actually serve to bring that impact "I" down. (What actually defines sustainable technology is a larger, and very interesting, discussion; at its simplest, it's efficient, effective, renewable energy based, cyclical by design, and toxins free -- or at least leaves living systems toxins free).

Despite continuing concerns about "competitiveness" from some quarters – a strikingly anti-innovation strategy from folks you'd expect to be pro-business -- "there is little evidence," the Times reports, "that multinational companies are seeking to locate plants mainly in countries that do not adopt the protocol. Environmental regulations are one of several factors taken into account by businesses in making decisions on new sites, but they are less important than matters like labor costs."

The Bush Administration, meanwhile, stuck in the old, and demonstrably false, assumption that environmental quality costs money, doesn't understand this. BP, which met its Kyoto goals nine years ahead of schedule, and at a profit, perhaps does.

Part of BP's solution package was internal carbon trading system that enabled more efficient allocation of capital to meet GHG reduction goals.

Leading companies seem to be increasing on board - often with more dramatic commitments than signatory nations. (See graphic.)

So expect to see growing action in emissions trading. The Times calls it "one of the Kyoto system's innovative features" - an ironic innovation, since the US fought hard and successfully for those provisions, over the EU's objections, before deciding not to ratify.

USAtoday reported that "Japan bought 41% of the carbon credits on the international market last year," according to a World Bank report, and is considering carbon taxes as part of its strategy.

Companies are seeing strategic opportunity as well. "BASF is pushing Germany to give incentives to homeowners to insulate their houses. It has refurbished a 1930's apartment block near its factories to show that it can cut emissions 80 percent. The motive is clear: BASF makes the insulation." (NYT)

"Whether you still believe that Kyoto is based on fuzzy science or is a stealth campaign by other countries to damage US companies, it's time to face reality," Industry Week editor in chief Patricia Panchak wrote recently. "Kyoto likely will affect how you do business no matter where your company is." (NYT)

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