Question: What incentives are there for companies to work toward sustainability?
Amit Chatterjee: For public companies, their primary driver today is still shareholder value. Meaning that they’re going to look for profits and they’re going to try to identify ways to maximize their environment or their energy consumption so that it still impacts shareholder value. We call this actually something called "organizational metabolism."
OMI is very similar to BMI, right? Your Body Mass Index. The notion that you have height as a constraint, because you can’t grow any taller once you sort of mature age-wise, but your at a weight point, and that weight can either be something where—ideal weight or can be something where you’d be a little bit above ideal weight. Right? There are five things you can do to sort of help drive down value—or drive down your weight. Right? It’s change your diet, exercise, do weightlifting, take diet pills, potentially do liposuction. Right?
Each of those different aspects of weight management come with a certain cost as well as a certain amount of timeframe. Right? To eat right and exercise everyday, usually takes nine to 12 months for you to get to the weight that you want. If you do liposuction, it’s an in and out procedure, right, in nine hours. Costs are different, timeframe is different. The same thing holds true for organizations. When they think about organizational metabolism index, they have to think about all the energy waste, or I say the energy that comes into the organization, the water that comes into the organization, and more importantly, all the raw materials that come into the organization and identify a balance and say, "To what extent is all of this coming in, can I actually lessen it, or green, or change the actual consumption that I have of that particular aspect and lower my greenhouse gas footprint, lower my wastewater, or lower my solid waste?" All of this with a profit mentality in mind.
So as a result, organizations try to go after this in a meaningful way without having to necessarily compromise their profit motive, but still be able to drive shareholder value. It is always important to note, though, that there are three main drivers. Right? Number one is cost savings, number two is brand equity, and number three is what we call "risk mitigation." The notion that, "If I run out of a particular raw material that I’m dependent on, what happens to my business?" And that forces organizations to start to rethink in a post-carbon economy mindset, how do I change what I do so that if rice runs out, how do I still run a Thai restaurant or an Indian restaurant that’s dependent on rice?
Question: How did you help the city of Palo Alto develop a plan for sustainable practices?
Amit Chatterjee: The city of Palo Alto is about a 60,000-resident area. It is a unique municipality in that it also owns its own utility. So, the breadth and depth of what it does actually enables us to really provide a comprehensive view of a multinational organization but within the confines of a 60,000-resident municipality.
With the city of Palo Alto, what we chose to do was look at the comprehensive deployment of Hara Solution. So, there are four modules to Hara. The first is called, "discover," which is, know the size of your footprint. Right? So if you consider in a conceptually a car, you look at your rearview mirror to identify where you’ve been. That’s roughly what "discover" does.
The second—the next three phases—are "plan," "act," and "innovate." Those are generally what you call going forward ideas. Right? You drive out your windshield. So, "plan" allows you to look forward to where some of the issues are, "act" is actually the activities that you’re doing to identify the best ways to lower greenhouse gas management, to lower your wastewater, and to lower your solid waste outputs. And "innovate" is as things change, new alternative energy technology's going to emerge, rebates for incentives from the federal government or municipalities, or states come available. You want to ensure that you’re using the best practices. Also, as new success stories come out. If someone else in another region, let’s say in Spain suddenly deploys a solar panel farm, a solar farm, that actually generates higher return on investment, than they had seen previously, you’d want to be able to access that best practices content.
So the notion was that city of Palo Alto knew that they had to go through the "discover, plan, act, and innovate process." So what they first did was they drove—they looked at the rearview mirror. They wanted to understand what their baseline footprint was. How had they done over a number of years and what was the opportunity that they saw going forward? So they wanted a forecast of where they would be under assumptions that city of Palo Alto is going to grow to “X” amount of residents, therefore they were going to consume “Y” amount of resources.
So once they created that footprint, they could now begin to actually identify what they do next. That is where they moved into the plan and act stage where they actually distributed the notion of a carbon budget to each department inside the facility. That meant that they would look at the police department, the fire, administrative services, etc., and allot them not only a financial budget, but also a carbon budget, and energy budget. And so these are how many kilowatt-hours you have, or this is how much CO2 you could actually deploy. This allowed them to identify a very complex set of strategies that they’d want to move out.
My favorite story actually is one that is probably the most sort of simple, but highlights the type of change management behavior that sometimes can occur when you start to just think differently around the environment. When the city of Palo Alto was thinking about this, "How do you find ways to reduce energy?" the Chief of Police actually looked at it and saw the canine unit and realized that the air conditioning was on. He realized that if I could turn off the HVAC and put on fans, the dogs would see no change, but I would no longer have to be reliant on HVACs to cool that system. That actually turned out to be a very successful project and they actually saw a return on investment by simply moving out that story. But you can visually picture those wonderful German Shepherd that served the city continuing to remain cool in the summer months, but there’s no HVAC system that’s generating CO2s into the environment.
The city of Palo Alto seen from about anywhere from $600k-$800k in savings on an annual basis using our platform and that’s allowed them to be able to continue to innovate on the future series of where they’d like to go forward.
Question: Should we tax carbon emissions?
Amit Chaterjee: The reality of the situation is, an additional tax through carbon may not be what the economic system can bear. The reality is, carbon tax or any sort of energy tax has to be offset against what are the taxes that you’re going to move away from. Payroll tax, as an example, is something that’s been around since Otto Von Bismarck’s time. The question is, could we shift away from that notion of a people-based tax, especially in the era of outsourcing and offshoring to one of, what’s the energy intensity of what you do from product and service standpoint?
And so I think there are three reactions when we talk about the tax notion. Right? The first is, is it actually a meaningful proxy for natural resources consumed? Secondly, what’s the emotional tie to it? And thirdly, whether it’s feasible, whether or not organizations should be able to deal with it.
On the first, the notion of, is this a correlation to consumption or natural resource impact. The answer is, if you look at where energy sources come from and how you deploy your business or your organization the answer is, there is a correlation to... if I’m taxed on the energy consumption I use, and I create a product or service, I’m probably consuming some form of that carbon issue.
Secondly, the emotional issue. Taxes are a third rail in the United States. Taxes are a third rail in the U.K. Frankly, taxes are a third rail in every government-run entity today in the world. As a result, the term tax makes it almost un-viable. As a result, the term tax makes it almost impossible for organizations to actually deal with a way to move forward. Governments can’t propose a carbon tax.
Thirdly, when we think about the feasibility of this, you know, identifying where you built something and what energy source you used is a highly distributed and highly complex story. Very many high-tech manufacturers today, very many clothing manufacturers today have no clue where their textile manufacturing facilities get their energy. They have no idea where the assembly of their laptop or their cell phone, or their mobile device was created. So, as a result, how do you actually create the tax? Do you create it at the Wal-Mart shelf, or do you actually create it at the source of where the product was created and bought?
Those kinds of questions around the tax issue make it a little bit more complex in compromising versus focusing on the cost-reduction opportunity of energy efficiency and secondarily, the opportunity to grow revenue through taking advantage of the post-carbon economy.
Recorded on May 19, 2010
Interviewed by Jessica Liebman