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Biofuels Slowly Take Flight with the Airline Industry

[fa icon="calendar'] Jul 20, 2011 4:02:22 PM / by Carol Pierson Holding

By Carol Pierson Holding


 Airlines won final approval from a U.S.-based technical-standards group to power their planes with a blend made from traditional kerosene and biofuels derived from inedible plants and organic waste.”

- Air Aviation News, July 2, 2011


3434945691_eec8580c6c_o I’ve heard a lot about biofuel for aviation tests, but they always sounded suspiciously like airline ‘greenwashing’ PR to me. Richard Branson’s $3 billion bet on an aviation biofuel company went bankrupt. Successful tests turned out to be only fractionally biofuel. Journalists joked about the smell of french fries filling the air. Is biofuel for aviation anything more than good promotion? I posed this question to Steve Verhes, Executive Director of Cascadia Carbon Institute, a Washington state biofuel expert and advocate. Steve’s answer: It’s complicated.

First, there is the food-to-fuel issue – a very real concern, especially with food price increases accelerating this year. But the aviation standards group in charge of the approval took care of that, mandating that aerospace biofuels be derived only from inedible plants.

Then there is the issue of converting even more land to agriculture—another bogey, especially in Steve’s hyper-environmental region, Washington state, where 700,000 acres of timberland were lost between 1978 and 2001.

The answer: Biofuel from inedible canola seed. Not only is canola not a food source, it requires no new land for cultivation in the Northwest. Canola is also an excellent rotation crop, re-invigorating soil that’s been depleted producing wheat or other crops, without requiring new land.

Best of all, canola can grow in areas too dry for most crops. Land that the Department of Agriculture is currently paying farmers not to farm in order to conserve soil. Without careful soil preservation techniques, giant dust storms can easily develop, wreaking havoc on local citizens and blowing away topsoil. Without topsoil, farmland becomes agriculturally unusable. Planting canola would not only hold down valuable topsoil, but it would produce a profit for struggling farmers.

The idea was so enticing that Imperium Renewables built the biggest biofuel processing plant in the world in Gray’s Harbor, Washington. The plant was capable of producing 100 million gallons of biodiesel – enough to power 2% of the state’s needs. There would have been no shortage of demand either, as the plant was located in the heart of the U.S. aviation industry and Boeing, already highly rated for environmental performance, had publicly committed to transitioning to biofuel.

But problems arose. Canola farming just didn’t catch on, so there wasn’t enough canola seed to keep the plant running. Imperium got its initial $214 million from investors before analysts started spotting holes in their projections: Actual production never came close to 100 million gallons due to the canola shortage. An IPO failed in January 2008; the company laid off staff, lost contracts and even shut down after an explosion in 2009; and Washington State has not yet mandated biodiesel production or subsidized its use, so Imperium has to ship its biodiesel to Oregon and British Columbia, which do have mandates.

All of which is depressing, but not devastating. Biofuel demand has picked up. Canola production is up this year and Imperium’s plants are running again. Ethanol could lose its subsidies, making canola more economically attractive.

Best of all is the news at the top: Just last week, the ASTM Emerging Fuels Taskforce, co-led by Boeing, a company with significantly higher environmental ratings than its industry, and the Federal Aviation Administration, approved biofuel for use in commercial jets.

But then my biofuel expert dropped the bombshell: A Boeing 747 uses one gallon per second when it’s cruising. One gallon per second. If Imperium had trouble filling its 100 million gallon plant capacity with canola seed, think of the staggering quantity of feedstock that would be required for aviation.

Oh well. Innovation takes time. The good news is that it looks like the players, from airlines to regulators to the formerly disappointed biofuel procesors - are sticking with biofuels for aviation.  In September KLM will launch more than 200 flights operated on biokerosene. Airlines in the Virgin Group are collaborating to see if they could develop biofuels at Los Angeles International airport. And even U.S. airlines are coming to the party: A major group, that includes American and United, is negotiating an agreement to buy biofuel derived from recycled waste for use at San Francisco Bay Area airports. And whether they’re motivated by promotion or profits or mandates and subsidies doesn’t matter, if it gets us to a cleaner future.


Carol Pierson Holding is a writer and an environmentalist; her articles on CSR can be found on her website.

Inset photo courtesy of puddy_uk (CC). 

 

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Matt Damon: The Good Water Shepherd

[fa icon="calendar'] Jul 14, 2011 5:25:54 PM / by Cynthia Figge

Water Fast Company’s July/August cover story is an inspiring account of a man who has doggedly followed his passions to bring clean water and sanitation to thousands of people across Africa. He also happens to be a famous movie star – which helps explain how he wound up getting his start in global development.

During the 2006 African filming of Invictus, Matt Damon asked Bono to arrange a ten-day crash course in poverty. After an eye-opening week exploring urban AIDS, microfinance, education and water, Damon decided to leverage his passion, star status and intellect to help bring clean, safe water to the nearly one billion people who lack access.

Following his mother’s example of first-hand, on-the-ground learning, Damon began a search for the most innovative water access solutions. What he found, while working on his documentary Running the Sahara, was Gary White, the creator of an organization called Water Credit. After throwing himself into a series of top-down global development projects in the 80s and 90s, White came to understand that community engagement “is a life-or-death strategy in the developing world”. He realized that even poor Africans had some money, but that their access to clean, safe water was held hostage by middle-men, who charged exorbitant rates for water.

So White created Water Credit, a water access development program that builds African water infrastructure through community buy-in. White’s model requires at least 80% of a community to sign up for a loan to create their own wells or buy their way into water access. Water Credit stays involved throughout the building and maintenance of a project, and even takes responsibility for community education.

In 2009, White and Damon joined forces to create Water.org, and have been working together ever since to scale innovative concepts like Water Credit. 315,000 villagers now own their projects and maintain clean water systems. The pair has also since created My.Water.Org, a mini site dedicated to tracing each step of a community water project in Haiti.

Thanks to donors like PepsiCo (whose Community Development and Philanthropy score on CSRHUB is 64) and others, Water.org anticipates raising $10 million in 2011.  These efforts are small in scope compared to the daunting problem facing a billion people needing clean water, but the lives of countless thousands will forever be changed for the better as a result of a man on his mission.


Cynthia Figge, Cofounder and COO of CSRHUB is a forerunner and thought leader in the corporate sustainability movement. In 1996 she co-founded EKOS International, one of the first consultancies integrating sustainability and corporate strategy. Cynthia has worked with major organizations including BNSF, Boeing, Coca-Cola, Dow Jones, and REI to help craft sustainability strategy integrated with business. She was an Officer of LIN Broadcasting/McCaw Cellular leading new services development, and started a new “Greenfield” mill with Weyerhaeuser. She serves as Advisor to media and technology companies, and served as President of the Board of Sustainable Seattle. Cynthia has an MBA from Harvard Business School. Cynthia is based in the Seattle area.

 

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The Big C and the C-suite

[fa icon="calendar'] Jul 11, 2011 9:27:39 AM / by Bahar Gidwani

No, we are not talking about that Big C—cancer!  We are talking about the C word that may have the biggest effect on the C-Suite—Competition.

The C-Suite cares about budgets, quarterly results, and cash flow. But they also track and worry about how their company is performing against its competitors. As CSR thinking gradually permeates society, the occupants of the C-Suite are being asked how their company compares to other companies on employee engagement, community involvement, the quality of its corporate governance, and how it treats the environment. These issues affect a company’s brand and may enhance or limit it strategic options. Communities may welcome a new facility from a “good” company and make demands or put limits on the expansion of a “bad” company. A company may have trouble acquiring another company if the acquired company management doesn’t feel that its “values” match those of the acquirer. A “progressive” employer has an advantage over an employer that is seen as “old fashioned,” when it competes for top talent.

Using a tool like CSRHUB, it is now relatively easy for C-level folks to benchmark their social performance against that of their major competitors. They can quickly drill down to find areas of weakness in their company and see how their competitors have burnished their social credentials. For instance, we recently found that companies who use the Global Reporting Initiative (GRI) system for organizing their social reporting get a 10 point benefit on their Environment Policy & Reporting score.

Screen shot 2011-07-11 at 10.27.13 AM

Many studies have tried to prove that companies that perform better on social issues and sustainability earn higher profits or get a lift in their stock price. However, data on these areas has not been consistently reported, not all companies report all data items, and social issues have been tracked for a relatively short time (less than twenty years). Therefore, these performance claims seem premature.

C-Suite managers have a burning interest in winning. If we can’t cajole them to change and if their calculations of ROI lead them to believe sustainability isn’t high return, we may still be able to get their attention by showing them what their competitors are doing. In truth, we should probably use all three means to get company C-Suites to “tip” to a view that sustainable and socially responsible policies will bring them valuable benefits.


Bahar Gidwani is a Cofounder and CEO of CSRHUB. Formerly, he was the CEO of New York-based Index Stock Imagery, Inc, from 1991 through its sale in 2006. He has built and run large technology-based businesses and has experience building a multi-million visitor Web site. Bahar holds a CFA, was a partner at Kidder, Peabody & Co., and worked at McKinsey & Co. Bahar has consulted to both large companies such as Citibank, GE, and Acxiom and a number of smaller software and Web-based companies. He has an MBA (Baker Scholar) from Harvard Business School and a BS in Astronomy and Physics (magna cum laude) from Amherst College. Bahar races sailboats, plays competitive bridge, and is based in New York City.

 

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The Power of Three Degrees

[fa icon="calendar'] Jul 8, 2011 10:36:00 AM / by Cynthia Figge

The Women’s Network for a Sustainable Future (WNSF) Seattle Chapter recently hosted an event at the University of Washington Law School featuring the story and work of two women, Jeni Krencicki Barcelos and Jen Marlow. The two came to law school to reframe climate change as a justice issue, not a technical or economic issue, where they discovered their mutual passion for addressing global climate change, and co-created Three Degrees. Three Degrees’ mission is to promote fair and equitable adaptation strategies for the world's most vulnerable communities. Here is an overview of Three Degrees, an inspiring story of the power of identifying real problems in the world, and setting out to solve them.

Based on the idea that “climate change threatens basic rights to health, food and water, security, equity, and justice,” Three Degrees has developed a fascinating framework for thinking about and understanding climate justice.

  1. Health: The effects of climate change seriously impacts global health and leans disproportionately on the already weak. For example, extreme heat events kill more people than all other natural disasters combined. Low-income people, who often cannot afford expensive cooling systems and may not have sufficient access to water, and the elderly, who are more naturally susceptible to extreme heat, are the most vulnerable to extreme climate situations.
  2. Food & Water: Climate change directly impacts global food and water supply. David Battisti, a food security scientist with the University of Washington, has estimated that for every degree of global temperature change, crop yields will decrease by 10%. Similarly, temperature increases have left bodies of fresh water around the world severely depleted. Africa’s Lake Chad now holds only 20% of the water it did 50 years ago. 
  3. Security: In many countries, climate change is a major contributor to national political instability. Cambodia – a country that depends largely on a network of NGOs that cripples its weak internal government – is just one of several countries particularly at risk for national unrest. Flooding and other climate disasters are common occurrences that create national upheaval and the government is largely unable to provide assistance to its people.
  4. Equity: Economic hardship is disproportionately affecting the poor. Small-scale farmers, for example, can no longer rely on age-old farming practices to make their living because of changes in seasonality and sea level. Oftentimes, those living in poverty cannot afford the re-education or investment necessary to sustain their means of livelihood or to switch professions.
  5. Justice: Those who are harmed or displaced by climate change cannot easily seek retribution through the justice system because there are few legal precedents or policies in place to prosecute those who commit climate-related injustices. Some are fighting to create precedents in these areas. Kivalina, AK filed a lawsuit against a group of oil giants that includes BP and Exxon-Mobil. Residents claim the companies are responsible for the global warming that has caused the erosion of their town.  

As leading climate researcher David Archer has written, even if we stop emitting carbon dioxide now, the long tail extends to tens of thousands of years and raises profound questions for intergenerational justice.


Cynthia Figge, Cofounder and COO of CSRHUB is a forerunner and thought leader in the corporate sustainability movement. In 1996 she co-founded EKOS International, one of the first consultancies integrating sustainability and corporate strategy. Cynthia has worked with major organizations including BNSF, Boeing, Coca-Cola, Dow Jones, and REI to help craft sustainability strategy integrated with business. She was an Officer of LIN Broadcasting/McCaw Cellular leading new services development, and started a new “Greenfield” mill with Weyerhaeuser. She serves as Advisor to media and technology companies, and served as President of the Board of Sustainable Seattle. Cynthia has an MBA from Harvard Business School. Cynthia is based in the Seattle area.

 

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Calculating the Cost of Change

[fa icon="calendar'] Jul 7, 2011 7:08:25 AM / by Bahar Gidwani

This is the second in a 3-part series outlining a framework for pushing C-level executives to improve social responsibility within their company. 

Social pressure and steady cajoling will encourage some C-Level executives to adopt sustainable practices and improve their social performance. However, many senior managers have been taught their first responsibility is to maximize return for their investors. They will claim that they cannot invest in projects that are sustainable unless these investments meet their return on investment (ROI) criteria.

Sustainability practitioners claim that reducing waste, cutting energy use, retraining employees, and other projects with great social outcomes have high ROIs. CEOs and CFOs don’t seem to agree. How can these two groups fail to come to the same answer, when they are making a fairly simple calculation?

I believe the main reason for this divergence is that the standard methodology for calculating ROI is biased against sustainable projects. Return On Investment is a ratio. You put the total cost of a project underneath all of the returns from the project.  Since the timing of the investment and the returns is different (generally the investment mostly occurs now, while the returns are in the future), you need to discount the future cash flows back to the present.  Most companies require the ROI on a project to be above 15 or 20 percent – and some use numbers as high as 40 or 50 percent.

There are problems with each part of the ROI formula, when a sustainability-related project is involved:

Return.  Sustainable projects may produce monetary returns such as reduced fuel use, lower waste disposal fees, and fewer governmental fines. However, many of the returns from sustainable behavior don’t translate well into money. For instance, how do you quantify employee happiness, reduced turnover, improved health for the communities the employees live in, enhanced brand appeal to consumers, and so on? Until and unless these types of return are measured, and credit is given in the return calculation for their value, we will underestimate the Return for many sustainability-related projects.

On.  On represents the “hurdle rate”—the implied cost to the corporation for the capital it is employing.  Many sustainability projects involve new technologies or approaches that have not yet been proven to work within a particular setting. These should get a higher hurdle rate—and therefore a lower ROI.  Other projects involve simple changes that have been well proven, and should have a low hurdle rate and higher ROI. All projects that improve a company’s social responsibility probably should get a hurdle rate credit, because they reduce risk from things like climate change, regulation, and brand erosion.  Unfortunately, most corporations use their cost of capital as their hurdle rate—and apply the same rate uniformly across all projects. This means that even projects with well-proven processes don’t get the hurdle rate boost they deserve.

Investment.  Many good sustainability-related projects require small amounts of capital and need to be implemented locally. As a result, they may not reach the scale needed to attract attention from the C-Suite. Without top-level attention, these projects languish and take much longer to complete than they otherwise would. Sustainability projects may also suffer when they require a human component—personal involvement from management, training, outreach to stakeholders, etc. If a company includes an estimate of the people resources required for a project in its approval process, sustainability-related projects can look less attractive. Of course, this ignores the benefits that sustainability projects may generate via team building and positive employee engagement.

The following table shows how dramatically relatively small sustainability-related adjustments could affect the ROI calculation for a project.

 

Hypothetical Effect of Sustainability On ROI for Co-Generation Power Plant Project

Investment Return Year 1 Return Year 2 Return Year 3 Return Year 4 Return Year 5 Hurdle Rate ROI
$1,000,000 $200,000 $225,000 $250,000 $275,000 $300,000 15.0% -16%
Additional investment to make the project more sustainable: $100,000
Additional Benefits
Employee retention (reduced annual search and training) $20,000
Increased productivity (annual) $10,000
Less exposure to future fuel increases (annual cumulative) $30,000
Enhanced resale value (only counted at end of project life) $50,000
Reduced risk of regulatory intervention (lower hurdle rate) 2%
Reduced risk of climate disasters (lower hurdle rate) 0.50%
Investment Return Year 1 Return Year 2 Return Year 3 Return Year 4 Return Year 5 Hurdle Rate ROI
$1,100,000 $260,000 $315,000 $370,000 $425,000 $530,000 12.5% 16%

Until companies are willing to make adjustments like these, ROI is unlikely to be a calculation that will change the C-Suite.  So, what’s left?  The next post in this three part series will talk about the “Big C”.


Bahar Gidwani  is a Cofounder and CEO of CSRHUB. Formerly, he was the CEO of New York-based Index Stock Imagery, Inc, from 1991 through its sale in 2006. He has built and run large technology-based businesses and has experience building a multi-million visitor Web site. Bahar holds a CFA, was a partner at Kidder, Peabody & Co., and worked at McKinsey & Co. Bahar has consulted to both large companies such as Citibank, GE, and Acxiom and a number of smaller software and Web-based companies. He has an MBA (Baker Scholar) from Harvard Business School and a BS in Astronomy and Physics (magna cum laude) from Amherst College. Bahar races sailboats, plays competitive bridge, and is based in New York City.

 

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