China’s Consumption Push: the Beginning of a Global Tilt

Posted on December 14, 2012 //

I got into the resource economy because it hit me about 20 years ago that China’s one billion people had just entered a period driven by a desire to accumulate. People wanted to buy stuff, and were finally able to. It was clear then that unless China was able to forge a new development path different from other industrialized countries (i.e. not on the back of conspicuous consumption), that it would soon evolve from being the world’s factory (hyperactive producer of everything) to being the world’s black hole (rabid consumer of everything). What gave me a sense of urgency then, which was amplified now with the publication of a new study from the Boston Consulting Group titled ”The Dynamics of China’s Next Consumption Engine“, was the vision of a China that literally consumed itself, and the rest of the world with it.

The executive summary of the BCG report sounds inspiring:

Within the next three years China is projected to overtake Japan and become the world’s second-largest consumer market. The affluent class is central to this rapid rise and will drive nearly half of this growth. As the incomes of today’s middle-class consumers increase, many will join the affluent class, which will grow to be an even more powerful force of 280 million people, or 20 percent of China’s population, by 2020. The spending of the affluent will grow fivefold to $3.1 trillion. This will be equivalent to approximately 35 percent of China’s total consumption and more than 5 percent of global consumption. It will also be nearly as much as Japan’s total consumption, 28 percent greater than that of Germany, and three times more than South Korea’s total consumption.

And that’s just with one-fifth of China achieving affluence. With China’s economic growth slowing because of weaker exports, the country’s new leadership has already said clearly that the solution will be priming domestic consumption. For a country that is already suffering from toxic waterways, coal-choked air and a looming public health crisis, monetary affluence clearly spells adject poverty when it comes to the future of China, and therefore the world’s future. I must confess, I am only consumed with two things: the thought that we have hit a global tilting point, and the following question: how do we get out of this mess?

Filed Under: china, consumer, Uncategorized // Tagged: , ,

$1 trillion… a solution to climate change?

Posted on December 5, 2012 //

My 10 year old son and I were talking the other night and he asked me: “Dad, what would you do with $1 billion?”. What followed was a conversation about how we’d try to invest the money in ways that had social impact (climate, child poverty, cancer were high on his list), while also saving just enough for our family to be secure. But then he asked me, “What about $1 trillion?” That’s a big number. Only two countries – China and the United States – each have a gross domestic product (GDP) of more than $7 trillion.  Add Japan and Germany if you’re talking over $3 trillion, with just 15 countries in total with more than $1 trillion in GDP.

And then we stumbled upon an idea. Could we address one of his concerns – climate change – if we bought up oil companies and then figured out a way to shut them down without major social, economic and political disruption? A little bit of back of the envelope calculation and we figured out that $1 trillion could buy you ExxonMobil ($400 billion market cap and world’s 4th largest oil company) and #6 BP ($130 billion), $210 billion for #7 Royal Dutch Shell and #8 Chevron ($200 billion), with room to spare. If half of the world’s 7 billion people could invest $200 to a general fund that would get you most of the way. If one-fifth of the world’s population invested $700 that would be more than enough.

But what would the climate impact be to take four of the top 10 oil producers in the world offline? Not totally precise (but close enough), let’s assume daily oil production of the four companies of 2.5 million barrels per day, or a total of 10 million per day, or 3.65 billion barrels per year. Assuming 430 kilograms of CO2 per barrel of oil burned, that’s about 1.6 trillion kg of CO2, or 1.6 billion tonnes. Total CO2 emissions in 2011 were 34 billion tonnes. So the net result would be a 4% decrease in CO2 emissions if the four oil companies stopped producing oil tomorrow.

Worth a $1 trillion? Not sure, but an interesting exercise in the power of crowdsourced impact investment. And given the current international talks on climate, perhaps no less feasible in achieving emission reduction goals.

 

Filed Under: carbon, climate, consumer, energy, oil, Uncategorized // Tagged: , , ,

It’s time for the gloves to come off on climate change

Posted on March 24, 2012 //

The people who accept climate change as a real threat need to accept that they have failed to get other people to accept climate change as a real threat. One climate scientist, Peter Gleick, was so desperate to expose skeptics that he lied to obtain internal documents from The Heartland Institute, a libertarian group that questions the reality of climate change and has done well in discrediting Gleick and his peers.

But stealing documents is not the way that climate policy will see meaningful change here in the United States. Stealing some of the skeptics’ playbook, however, might make a difference.

Liberal foundations (there are several prominent ones) that fund efforts here in the United States to make sure climate change is properly reported, and to have rapid response in place to rebut arguments from climate skeptics — they all live in their heads. Their approach is rational. They underappreciate the fact that the issue at hand is emotional and visceral.

Conservative attack dogs understand this. They have no hesitation going for the jugular, or playing to our most primordial instincts and fears. The liberal elite, meanwhile, continue to try to influence policy and public opinion by citing science, by correcting factual mistakes and by engaging in “substantive debate.”

They will never win, because they are not only playing by the wrong rules, they are playing the wrong game.

Prompting action on climate change requires open warfare. Gloves off. If there are rules, they are street rules, i.e. logic is out the window. On the street, it is all about protecting your people.

The idea that accurate reporting will change the way anyone thinks or acts on Capitol Hill is ridiculous. It’s like planting a seed in Death Valley and expecting it to miraculously sprout into a beautiful carbon-mitigating flower. Not going to happen.

Recently, executives at many renewable energy companies have been discussing an opinion piece by Severin Borenstein, a professor of business and public policy at the University of California at Berkeley, who argues (largely correctly) that the Obama administration’s linkage of clean energy to jobs and innovation is placing focus on the wrong issue.

His argument is simple: the dirty energy industry can just as easily claim that it is creating jobs and innovating, and they wouldn’t be lying. Borenstein suggests that the true issue must be global warming. Nor is this incorrect. But — no offense to Borenstein — while he is no doubt a great academic, he is not an influence peddler. And that’s what is required in this situation.

New research from the National Survey of American Public Opinion on Climate Change backs that up: Almost 4 in 10 Americans still don’t believe in man-made climate change (and that’s actually an improvement from 50 percent in 2010). Additional research by Third Way, a moderate Washington think tank, unveils an alternative to focusing messaging on global warming, and this alternative is rooted in the idea of talking about the benefits of arresting climate change.

As any good marketer knows, when you’re selling something, you’re selling the personal benefits, not the product itself. In the same sense with climate change, we need to sell the benefits of stopping man-made climate change.

Recent focus groups conducted in Ohio and North Carolina by Third Way confirm this approach. Besides concluding that “voters in traditional energy states want to get America running on clean energy,” their findings – Moving Clean Energy to the Center: Insights from Swing Voters in the Midwest and South – reached three other important conclusions:

  • Focusing on long-term economic growth potential and the consequences of inaction works. Selling near-term job creation doesn’t.
  • Tapping into concerns about pollution and the strong desire to eliminate coal works. Focusing simply on climate change doesn’t.
  • Describing a vision of government as a facilitator for the private sector works. Direct spending by government doesn’t.

As the California campaign against Proposition 23 last year proved, concern about public health because of pollution made a huge difference in defeating the proposition, which aimed to cancel the state’s nation-leading and progressive climate policy. The involvement of the American Lung Association gave the pollution message credibility and linked it in a very visceral way to personal benefit.

If Obama ever grows a backbone on the climate issue (he’s shown he has courage when it comes to terrorism, and what is global climate change but the ultimate terrorist?), here are some suggestions for talking points that are tied back to the notion of protecting your people and personal benefit.

It’s an approach that might make a difference to the people who can really matter in this discussion — not the liberal elite, not the conservative skeptics, but the 4 in 10 everyday people going about their business and just trying to get by.

 

Climate Change Deniers Climate Change Hawks
The EPA is a job-killer and must be shuttered. Conservatives want to poison your water supply and make sure that your children are exposed to toxic chemicals and asthma-causing pollution.
Carbon regulation is an additional tax and an economy-buster. The Extreme Weather Party (aka the Republicans) is actively preventing steps that would help communities from being destroyed by the increasing occurrence of deadly tornados, hurricanes, flooding and drought.
Clean energy jobs are a myth. Clean energies like solar have a multiplier effect in economic development compared to dirty energy.*
The White House climate hoax is to blame for high gas prices. $5 a gallon is a small cost compared to sending your neighbor to die in Iraq and Afghanistan to maintain stability of our oil supply, and the $1 trillion price tag for two wars that the U.S. taxpayers didn’t want.

 

We need to reach 10 out of 10 to achieve meaningful action. Reframing the conversation can help get us there. And as the American Lung Association showed in California, so can engaging messengers that are all about protecting your people.

Another such messenger is the insurance industry — not traditionally seen as a bastion of consumer advocacy. Yet they see a severe threat from climate change, and are starting to get very nervous that their business model is in jeopardy. Last week, on the heels of the devastating tornados that ripped through the United States killing dozens and destroying whole communities, representatives of the industry went to Congress to implore them to not only believe, but to take firmer action on climate.

“From our industry’s perspective, the footprints of climate change are around us and the trend of increasing damage to property and threat to lives is clear,” Franklin Nutter, president of the Reinsurance Association of America, said during a press conference that also included representatives from Swiss Re, Willis Re and the nonprofit Ceres, which leads a number of industry efforts focused on sustainability.

Cynthia McHale, Ceres’ insurance program director, took the gloves off a bit more and focused on personal benefit, saying that unless we end political paralysis on climate change, “extreme weather is certain to cause more homes and businesses to be uninsurable in the private insurance market, leaving the costs to taxpayers or individuals.”

In the United States last year, we experienced a record 14 natural disasters causing more than $1 billion in damage each. Property and casualty insurers lost an estimated $44 billion in 2011, a year in which natural disasters were more severe, more frequent, less predictable and longer than in the past. The average weather-related insurance industry loss in the U.S. is now $20 billion a year, a more than six-fold increase from about $3 billion a year in the 1980s, according to Swiss Re.

*(This is where I slightly differ with Borenstein, whose Berkeley colleague Dan Kammen has shown that solar installation creates five times or more the number of jobs than does investment in a natural gas plant of comparable capacity).

This article also appeared on Greenbiz.com

Filed Under: Uncategorized //