Green Business

Over the last month, three major news magazines have had cover stories on the increasing importance of environmental issues in America.* In a striking turnabout, these articles are largely progress reports on efforts by business to meet environmental challenges, rather than how business has tried to downplay or deny the threat of climate change. Repeatedly, too, in recent weeks, the Wall Street Journal has contained news on ecological developments in individual companies or sectors of the US economy.

The change in attitude is summed up in Business Week for January 29. "Sustainability" had been viewed as merely adding to costs and perhaps prompting companies to set up Environmental Affairs Departments with a mainly public relations orientation. Then the companies could say they were abreast of these issues, have representation at major UN conferences on them, and the like.

Gradually, as companies did more research, they came to the realization that the kinds of projects they would undertake to meet sustainability goals or adhere to regulations actually presented business opportunities. Rather than adding to costs, these initiatives might reduce costs or yield new revenues from enhanced product offerings.

Here are three such activities that can give you a flavor for what's going on.

Wal-Mart, not presently known as the most thoughtful corporate citizen, is in fact working on environmental issues on a number of fronts. Some of them are very simple: it learned for instance that it could make a meaningful cut in its fuel usage and heating expenses by installing skylights in its buildings. The firm opened a new "energy efficient" store in an abandoned shopping mall in the Kansas City area in January. It cut down on the packaging for some of the toys it sells, reducing waste and in the process saving itself $1.2 million a year in shipping costs, according to the Business Week article. Perhaps most intriguing, the stores began to sell fish from "sustainable fisheries". Business Week quotes a major fish supplier about the effect of this policy, "They can have more impact than a bunch of smaller, more noble players . . . . It has brought an about-face in the mindset of the entire supply chain."

The Wall Street Journal in last Wednesday's (February 21) weekly "Property Report" notes that despite sharp declines in home sales and home construction, sales of environmentally friendly building materials are holding up well. Demand is up for dual-pane windows, heavy duty Styrofoam insulation and similar items to keep down heating and air-conditioning costs. Home Depot and Lowe's benefit, among other building suppliers. And after all the bad-mouthing Styrofoam has taken over the years as a clutterer of landfills, here is a good use for the material.

Finally, for today, the stories are true: you can get energy out of garbage. I've always thought this notion was pie-in-the-sky, but it isn't. The new, March 2007, issue of Popular Science** magazine describes in detail the development of a $250 million Plasma Converter, the Startech. It breaks down garbage – toxic stuff, even – into its molecular form. The fuel generated by the transformer is more than enough to cover the energy it uses itself. Sales back to the local electric power system, as well as lower garbage disposal costs, mean the machines pay for themselves very quickly. One of the first major commercial applications will be on Long Island, by a company that disposes of construction debris.

Some of these innovative projects are spurred by government regulation. But some are not; they come from private and genuine efforts to make the environment better. At the same time, as we noted here before, some naysayers may argue that the companies are just doing these things for profit. But the important point is that there is profit to be made in these products and services, whereas few saw such profit opportunities in the past. In a future Ways of the World, we'll examine what investors think about this emphasis; investment firms and stock researchers are already adding ratings of environmental policies to the financial indicators they study routinely in evaluating companies' debts and stocks.

In the past few weeks, we've brought you discussions of the massive amount of US petroleum consumption, car and truck designs and fuels, and new business environmental initiatives. We've learned a lot ourselves and, honestly, had a good time exploring these things. Acknowledging ecology is perhaps the most dynamic development in business practices and products since computers and will have far more fundamental and longer-lasting ramifications. We'll revisit it again soon.

Meantime, it's nearly spring, and for you and me, that can mean only one thing about our own personal economies: taxes. We'll shift our attention to some considerations about taxation in general and about our own tax returns.

*"Imagine a World . . . ." Business Week, January 29, 2007, pp. 50 – 64.
"Overselling Ethanol" U.S.News & World Report, February 12, 2007, pp. 30 – 39.
"The Greening of America", The Economist, January 25, 2007, pp. 9, 22-24.
**"The Prophet of Garbage", Popular Science, March 2007, pp. 56 – 61; 86 – 90.

Arnold Schwarzenegger's Hummer

It's a great image, isn't it? The hulk of a man, the Terminator, the world's most macho actor, driving the world's most macho vehicle. But the Governor of California, the state with by far the most stringent environmental regulations? Hardly!

But it's OK. His Hummer is a special version. It burns hydrogen, not gasoline, so it doesn't pollute.

Hydrogen cars and other "alternative vehicles" concern us today. While a mere fraction of cars on the road, they mark huge steps toward easing energy and environmental strains; some of these developments are really fascinating and exciting.

In the United States in early 2006 there were 200.7 million licensed drivers. At the end of 2005 there were 231.9 million passenger cars and light trucks. Indeed, more vehicles than drivers. We've already explained that these vehicles (plus about 9 million "heavy" trucks and buses) burn up 11% of the world's petroleum and put a consequential volume of carbon emissions into the atmosphere.

Inefficiency
Ordinary internal combustion engines and the way they power ordinary American vehicles is "embarrassingly inefficient", according to Paul Hawken, Amory Lovins and Hunter Lovins, authors of Natural Capitalism (Little Brown & Company, 1999), from which we quoted at length last time. In Peter Tertzakian's book, A Thousand Barrels a Second, he lays this out neatly (page 113):

• Start with the total chemical energy in a barrel of oil: 100%
• The refining process loses 17%, leaving 83%.
• The working of the car engine converts the chemical energy into mechanical power. This uses another 54%, leaving just 29%. We've consumed 71% and we haven't moved the car yet.
• Getting power TO the wheels uses another 10%, leaving 19% of the original amount.
• Finally, overcoming the friction as the rubber meets the road uses 2% more, leaving only 17% of the original energy that actually moves the car.

The arithmetic gets worse. Suppose the car weighs just over 3,000 pounds and you weigh 160 pounds. Of a combined total 3,200 pounds for car and driver, you constitute 5%. So moving YOU uses 5% of the 17% moving energy, or a tiny 0.85% of the original energy in a barrel of oil.

Remedies
Approaching the questions of energy use and environmental impact from a structural viewpoint makes us look at potential improvements in a different way. If we see how the energy gets lost, we can correct that. Yes, alternative fuels are important, but there is more to the story. We can get much farther.

Suppose the car is standing still. As we drive, its power is wasted three ways. First, when we drive off, the resistance of the tire and the roadway generates heat. "Burning rubber" is more than just a phrase. And "road rage" drivers would generate a lot of heat. So manufacturers are already making narrower tires and wheels with spokes to lessen the resistance; those fancy wheels on many of today's cars are there for more than just their good looks! Think of a bicycle: when we are just learning to ride and stability is key, we use one with big fat balloon tires. But as we progress and we want more speed and maneuverability, we reduce the resistance by getting a model with thin racing tires.

Secondly, as the car moves along, it pushes air out of the way, a lot of air: some 6-7 tons every mile. So we use a streamline design to overcome aerodynamic drag, just like an airplane. We might also make the car out of a lighter-weight material, maybe high impact plastic, similar to Kevlar. Hawken, Lovins and Lovins describe that with such materials, the vehicle can have the strength of 3,000 pounds of steel in just 1,500 pounds of carbon fiber. The material from which the car is molded, not welded together, makes the manufacturing process and maintenance more efficient as well by drastically cutting the number of parts; painting becomes easier and much less polluting because pigments are embedded right in the carbon fibers instead of being sprayed on a steel body. Formula One racecars are already made this way as are some new "concept cars" used for demonstrations. These vehicles are safer in accidents and far easier to repair after one.

Finally, when we slow down, applying the brakes generates heat. Today's hybrid cars already work with this heat in a process called "regenerative braking". The heat of the brakes is captured and made into electricity, which is stored. It is then available to augment the car's power at points of peak demand. So the engine doesn't need such great capacity for ordinary driving, since it has a built-in auxiliary power source. The hybrid's generator is also recharged as the gasoline engine runs, obviating the need to plug a battery into an external power source.

These technologies are all available now and as we've noted, some are in commercial use. They reduce fuel needs, whatever the fuel being used. The burdensome gasoline prices of 2005 and 2006 accelerated development of these systems, as has public recognition by government officials that the environmental impact is significant.

Fill 'er Up – Right in Your Own Garage
Further innovations can help spread use of non-polluting fuels: on the Honda company website, www.honda.com, the environmental section describes two new appliances to facilitate use of natural gas and hydrogen. These are "home filling stations". One of the arguments against the early use of these fuels has been the lack of facilities for convenient refueling. However, Honda – which we use as an example, not necessarily an endorsement – has partnered with Toronto-based FuelMaker Corporation to sell or lease FuelMaker's "Phill" with the new Civic GX natural gas-powered cars. Phill is installed in the owner's garage and plugs into a standard residential gas line, the same one you use for cooking or in your furnace. According to Honda, the natural gas Civic releases 11% less greenhouse gas (GHG) than the regular Civic.

The company is also working with Plug Power Corporation of Latham, New York, to provide a similar device for the upcoming 2008 production model of its hydrogen fuel cell vehicle. At first, the hydrogen will also come from natural gas, which will be processed by the Plug Power device to separate out the hydrogen. It will be stored in a tank in the back of the car, a position similar to today's gas tanks, and converted to electricity in the car's fuel cell to run an electric motor, a much simpler machine than a gasoline engine. Is the tank of hydrogen too dangerous? Hawken, Lovins and Lovins reassure us that it is no more dangerous than a tank of gasoline and any fire from it is less likely to cause burns than a gasoline blaze.* The hydrogen vehicle chops GHG emissions by 37% from a regular Civic. The next step will be sourcing the hydrogen from solar power, which would have virtually no greenhouse gas emissions.

Aren't these vehicles hugely expensive? Well, yes. Hybrids have cost more and surely hydrogen vehicles will too. Buyers are helping pay the development cost of the new technologies. But as with other "new things", these prices will come down. Compare computers and HDTV monitors: as they became more accepted and production runs became longer, their prices fell. In fact, among the new cars, Toyota just offered the first financing incentives on its popular Prius hybrid in January.

More than Ethanol
Last week's U.S.News and World Report bemoaned the fact that policymakers seem to be banking too much on ethanol as the answer to the problems of GHG and energy independence from foreign oil. We'd argue instead that ethanol is a transitional solution. The fact that we can write 1,200 words here on this topic before we even mention ethanol indicates that there is lots more going on. Surely we as drivers will be making changes in our vehicle fueling routines, but look how nearly all of us have learned to pump our own gasoline since the first fuel crisis in the 1970s. We can learn too to plug a natural gas hose into the car when we get home at night or to maintain our solar batteries. We won't have to stop driving, and we'll be driving healthier vehicles, hopefully in a safer way.

Oh, yes, and Mr. Schwarzenegger's Hummer? We see that in addition to refitting it with a hydrogen fuel-source motor, he should also pull off its tank-like square steel body and replace it with a sleek carbon fiber canopy!

*We were fascinated to read in Natural Capitalism that in fact in the Hindenburg disaster in the late 1930s, the people who rode all the way to the ground in the gondola below the burning hydrogen balloon actually walked away unharmed. There were 62 of them.