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

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?

$1 trillion… a solution to climate change?

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.

 

marketing monday: the green, the clean and the dirty

Friend Joel Makower stirred up a good discussion last week with his article, Green Marketing Is Over. Let’s Move On. Green marketeers Suzanne Shelton and Michael Martin disagreed with him. And while I agree with Joel (I’ve made the case in the past that not only green should be pronounced dead, but so should the notion of sustainability), I don’t expect the use of either to disappear anytime soon.

However, I find it somewhat amusing that Joel is calling for the demise of green on his website, GreenBiz, that is built around the concept of promoting green. Why should green marketing be obsolete, but green media not be? And Joel also mentions that Michael and Suzanne are green marketing consultants, the implication being that they have vested interests in promoting the survival of green marketing. True. But doesn’t GreenBiz also have a consulting arm focused on… helping companies become more green? Hmmm.

Mind you, as a marketer myself of “clean” – as in cleantech, clean energy and the clean economy – I’m not exempt from scrutiny (as I have pointed out in the past, there is no such thing as clean anything when you take a closer look. After all, everything we make requires the consumption of something, including EV batteries, solar panels, wind turbines, etc). Matt Ridley recently wrote a provocative post on this subject, which seems accurate and misguided at the same time. Accurate in that renewables are not strictly renewable if you look at their entire supply chain. Misguided in the assumption that there is an apple to apples comparison between fossil fuels and renewables (can you say “externalities”?).

So what’s the takeaway for me? We can all make the subject moot if products that have a smaller ecological impact 1) cost less, 2) are easy to use and 3) work well. Ultimately, that’s a function of innovative marketing that can help scale market demand, but more importantly innovation in financing, policy and product development. Green only becomes obsolete when there is no need to distinguish from the alternatives on price, efficacy and reliability.

Cleantech Policy Needs Clarity, Consistency and Cojones

EarthTechling recently interviewed me and asked for my perspective on trends in cleantech, including marketing, communications and PR. Some themes that emerged:

  • Five suggestions for cleantech companies to set themselves apart in a crowded market
  • Backing “boring” businesses usually works
  • Technology innovation we have plenty off; we need marketing, financing and business innovation (plus the 3Cs from energy policymakers – clarity, consistency and cojones

See the full interview

EV to be Most Hyped News of 2011: Survey

Media covering renewable energy and cleantech overwhelmingly expect the biggest news hype of 2011 to come from electric transportation, while they identified energy efficiency as the most deserving of coverage, according to my annual survey. With more than 70 respondents from newspapers, magazines, broadcasters and blogs, the survey also revealed that more than two-thirds of media expect demand for cleantech coverage to be greater this year.

The survey strongly confirmed one trend – the migration of content online; and appeared to shoot down another – lack of adequate budget. Nearly all of the respondents – 96% – said their work will primarily appear online, while almost 70% said that they would have enough resources to do a good job of reporting on cleantech this year. At the same time, there is a willingness to use content (video, animation, graphics, etc) produced by non-media sources (73% said they frequently or sometimes used content developed by companies).

In addition, the survey revealed some social media habits with regard to obtaining information, with Twitter (82%) by far and away the top choice of social tools for tracking news.  The RSS feed is also clearly not dead, with 57% naming it as the second tool of choice.

EV received 56% of the votes to be the most hyped sector in 2011, more than double the nearest competitor – smart grid, which received 20% of the votes. The only other technology that registered double-digit percentages was carbon capture and sequestration (16%).  On the flip side, media identified energy efficiency as the area that deserved the most media attention, with 42% choosing EE. This is ironic since I’ve often heard reporters say that they want to cover energy efficiency, but editors find it too boring (this is backed up by page views). The other technologies deserving attention mentioned by  more than 10% of respondents were: carbon management (20%); solar (13%); smart grid (13%) and water (11%). One of the most important sectors from an impact perspective, agriculture and foresty, got no votes.

As in previous years, the overwhelming majority of those surveyed (68%) said B2B coverage would take priority this year, with the remainder paying more attention to consumer technologies. Overall, the overall trend is also of continued interest in the sector – 62% expected increased demand for cleantech news among audiences

Interest in policy coverage also remains high, with nearly 80% expressing significant or moderate interest in tracking government developments.

Roundup: Cleantech Predictions for 2010

Based on the rash of predictions for cleantech in 2010 from investors, consultants and media (see the full list at the end of this post), I’ve pulled together a “trend of trends” list below that attempts to synthesis the broader, over-arching themes. As always, I’m amazed that water isn’t on the top of every list, every year, although there are some positive signs on that front. So here are the 12 things that filtered to the top:

  • Energy efficiency will have a big year, with buildings and information and communications technology (ICT) front and center (nice to see the “wow” factor over technologies like solar being tempered by the realization that there are a lot of cheaper ways to meet immediate goals for reducing emissions)
  • Private investment will revive (with one prediction for a record-breaking year), but fears persist that the pending end of stimulus dollars will cast a long shadow over the market
  • Differentiation – i.e. marketing – will increase in importance as we move from a technology-heavy phase to a commercialization-focused phase (something I’ve called attention to in the past).
  • Consolidation and industry shake-out will accelerate, as will increased involvement of major corporates. Many VC-backed firms need an exit (especially in smart grid, solar and biofuels), so expect a few IPOs, but mostly M&A or failure as scale becomes more important and winners and losers emerge. And as the market grows and the issues being addressed become more complex, big multinationals with vested interests will try to play a larger role
  • Smarter transportation – especially electrified – continues to gain traction, while next generation liquid fuels (cellulosic in particular) takes baby steps
  • It’s more than energy, stupid. Land, water, rare earth metals, etc take more mind share as understanding grows  that the issues we face go beyond energy and carbon
  • Importance of carbon measurement and management will increase, but folks seems pretty skeptical that even if climate legislation/treaties get enacted that they will be aggressive enough (some expect sector specific carbon regulation – i.e. aviation and shipping – instead of economy-wide measure
  • Distributed solutions continue to erode the power of centralized systems (in energy generation, building, transportation, etc)
  • Some technologies expected to garner attention: Waste to energy, waste biomass, power storage, geothermal, aquaculture, ultracapacitors, desalinization, building materials, large-scale solar
  • There is a lot of expectation around advancements and interest in upgrading the electric grid; although there was a warning to expect at least one major failure of a smart grid rollout (not to mention that people have been predicting an intelligent grid for many years)
  • Standards gain a higher profile – whether building codes, water or carbon labeling, unified standards for the smart grid, etc, creating a clear marked playing field grows in importance, including communicating the rules to consumers as needed
  • International competition to be the cleantech leader intensifies (again this is something I’ve written about in the past, so not really news in my opinion)

If you want to read for yourself, the various predictions I’ve pulled from are here: Energy stocks to watch from Seeking Alpha; Overall industry outlook from the Cleantech Group; Clean energy predictions from Deloitte; Two different VC perspectives, one from Lightspeed Venture Partners  and the other from Rob Day at Black Coral;  5 biggest hurdles from Earth2Tech; IT and corporate green from Greenmonk’s Tom Raftery; Green building trends from Earth2Tech;  Top 10 promises from cleantech companies from Cleantech Group; Smart grid from Earth2Tech.

Green Eggs & Spam: Work Remains for Marketers

According to the State of Green Business 2009 released today, consumers aren’t buying it when it comes to corporate green marketing. The most damning excerpt of the report’s section on marketing cites a Brandchannel.com report that found readers could think of not one brand that was “truly green or going green”. Nice try ecomagination! I guess we’ll have to see if GE’s Super Bowl ads on its smart grid business make any difference in perception. In the meantime, thefederal government is also doing its part by refreshing rules governing green marketing claims. The rules are badly needed. As is evident from the SOGB report, it’s still possible to build practically any argument for or against green marketing depending on the data/research you use. We need standards. Here’s the section on green marketing from the report:

A rise in green marketing efforts has been matched by a nearly equal rise in claims of greenwashing by activists, bloggers, and others. Increased concerns about energy, climate, toxics, and other environmental issues have led some of the largest consumer brands to enter the green marketplace, prodded by retailers such as Wal-Mart, which has been pushing suppliers to offer affordable green products. But with the new players and products has come a new wave of claims about greenwashing, or at least public frustration that companies aren’t doing enough, aren’t telling their stories well, or both.

Green claims have continued to grow. An Earth Day report revealed that 2007 saw the largest number of green trademark applications since 2000, according to the U.S. Patent and Trademark Office: More than 300,000 applications for green brand names, logos, and tag lines. Companies like Apple, Canon, Clorox, and Fiji Water entered the green marketplace for the first time, raising awareness — but also questions and, sometimes, controversy. Given the lack of definitions, just about anything can be claimed as “green” — or “greenwash” — further muddying the waters.

One problem is that consumers are ambivalent at best about shopping green. They claim they want to, but they also say that they don’t trust companies. For example, surveys show that the number of people concerned about climate change continues to grow, and that consumers believe businesses should bear the heaviest load in addressing it, but they aren’t convinced that the business sector is doing as much as it should. Marketers aiming to shift their audiences toward making greener purchasing decisions are coming up short for the vast majority of the population, although a small subset is green enough to helpspread the environmental awareness on their own, according to one study. Although about half of those in another survey said they trust companies to be truthful in their environmental marketing and believe companies are accurately presenting information about their impact on the earth, nearly 60 percent would like to see more government regulation of green claims to ensure they are accurate. Given the Federal Trade Commission’s review of green marketing claims launched last year, they just might get it.

The upshot is that despite the continued upswing in green business activity, there’s no concomitant rise in consumer awareness or trust. Case in point: With no prompting, nearly half of all respondents to one survey were essentially unable to name a single feature of a green home — not solar power, compact fluorescent light bulbs, home recycling, or Energy Star-labeled appliances. And when readers of Brandchannel.com were asked what brand they think of as truly green or going green, the top answer: none at all.

‘Green’, ‘Carbon Footprint’ Make Banished Word List

It’s official… sort of. According to the 34th annual List of Words Banished from the Queen’s English for Mis-use, Over-use and General Uselessness just released by Lake Superior State University, “green” and “going green” topped the most villainous terms of 2008 (other green themed expressions submitted included “building green”, “greening”, “green technology” and “green solutions”). Close behind was “carbon footprint” and “carbon offsetting”. The survey certainly isn’t the most scientific, but it was based on thousands of nominations from all over the country. Makes me wonder if the organizers of the “Green Inaugural Ball” taking place on the eve of the Obama presidency have time to make a name change. Perhaps they could call it the “Gangrene Inaugural Ball”? Also makes me wonder if media that have embraced green in their branding – i.e. GreenBiz, New York Times’ Green Inc.Greentech MediaGreenbang, Always On Going GreenFortune Brainstorm: GREEN, etc – need a rethink as well. My favorite pull-quote from the LSSU survey came from a man in Bristow, VA:

“If I see one more corporation declare itself ‘green’, I’m going to start burning tires in my backyard”. – Ed Hardiman

Fair warning. But Ed, make sure it’s a green tire.

Special Green Issues Endangered

MediaWeek reported this week that interest from media properties to put out stand-alone green issues is waning in the current economy. So far the list of titles to do away with green issues in 2009 includes Domino, Discover, Sunset and Outside, according to the article. But the sub-text of the story, for me at least, is less about the economic factors involved behind the decision, and more about the growing sense that green no longer needs its own bully pulpit. Beth Brenner, an executive at Discover, is quoted as saying that advertisers don’t need a green-themed issue to tell their story, noting: ““They’ve made it a part of their everyday messaging.”  Which takes me back to a post I made in May of this year about theDiscoloration of Green. It makes the case for an end to green as a separate topic, and for the start of green as an integrated thread woven throughout the fabric of business and policy.

The Discoloration of Green

Last year, I said that a time would come when the term “green” would fall into disuse. I’m now wondering if that time is nearer than I originally thought. I’m already sensing some fatigue from friends in the media. At the consumer level it’s also more pronounced (depending on the day, search for “green fatigue” on a leading search engine bring back 500,000 to over 1 million results). Ironically, at the recently concluded Fortune Brainstorm: Green event, Andrew Shapiro of Green Order said that it felt as if 2008 would be the “apex of green”. Which of course begs the question: How steep is the downward slope in 2009? Ted Nordhaus (who coincidentally was my childhood neighbor growing up in the southeast quadrant of Washington, DC, back when we both had hair) and his cohort Michael Shellenberger, in 2004 shook up the establishment with their paper called “Death of Environmentalism“. They succeeded in pounding the final nail in that coffin. Now green’s utility is in question and it is even being challenged by another color – “blue”. Sustainability advocate Adam Werbach is now selling blue as the next step beyond green, arguing that blue is more accessible because it, in effect, means having your cake and eating it too (I’ve tried that, by the way, and I keep biting my hand by mistake). But really, green or blue, aren’t we just creating another arbitrary label that will also fade away with time? Aren’t we just setting ourselves up for “blue fatigue”, when the next Adam Werbach comes along and pronounces the blue movement dead, and argues that its time for chartreuse to have a turn? Not to mention the fact that people in the developing world (I spent 16 consecutive years in China from 1987-2003 so I have some credibility) have just started the Long March to consumerism and couldn’t really give a damn about green or blue, unless its related to the color of their new car or the tile in their newly renovated, air-conditioned kitchen.

I moved into technology because public capital markets (and human activity more generally) are driven by short-term interest and unsustainable growth. Facing a powerful system backed by powerful inertia, it was my conclusion that fundamental change to our behavior around consumption/growth is highly unlikely to happen (to the degree or within the timeframe needed) to address the ecological problems we face. That POV was largely informed by my time in China, where I watched stock markets open, bans on advertising lifted, private cars allowed back on the roads and consumerism return with a vengeance. I witnessed China’s boom and how it raised a lot of people out of poverty. The problem is that we can’t raise the remaining 1 billion Chinese out of poverty without totally screwing ourselves and the ecology. And China is just the start - Brazil, India and the rest of the developing world are going through the same transformation. Far be it for me to deny others the chance to live lives of comfort. But it is highly naïve to assume that individual Chinese or Indians or Brazilians will have the foresight to look beyond their drive to material comfort and make decisions on how they live based on a moral responsibility for the health of the planet. The West didn’t. It just won’t happen (no offense Bill McKibben, whose conclusion for our generation – that more is not better – ignores the fact that its mainly people who know wealth who have room to think about less). Only when people are so afraid of the ramifications of climate change or toxic sludge seeping out of their water taps will they be motivated to change behavior (as recent events in Juneau underscored). But of course, by then it will be too late.

So my bet for overcoming the challenges is technology, broadly defined. The way I see it, technology is the layer buffering natural resources from consumer and corporate behavior. It allows consumers to continue to behave much as they do and it allows natural resources to get a reprieve from that behavior. The more scaleable the technology, the bigger the reprieve and the better our chances. What Lawrence Berkeley National Lab has done with appliance standards in China is a perfect example of this. “Technology buffering” is not a panacea, but at least there is an opportunity to insert new clean technologies into existing products and systems and have a significant and accelerated impact. That’s what gets me moving in the morning. (Several new books, The Cleantech RevolutionThe Plot to Save the Planet and Apollo’s Fire address this movement).

What interests me from the Fortune event and others that I’ve attended over the past two years is a shift in the conversation. Many of the people I talk to say green/blue doesn’t really matter. I agree. What matters is that “industrial restructuring” takes place. Whether the CEO of Stonyfield Farm (“we don’t even use green to describe our customers, but ‘quality’ or ‘educated’”), the chairman of SC Johnson (“we need to move the conversation from going green to transforming industry”), Vinod Khosla (“people’s view of green is obsolete, its about mainstream business”), or builder Steve Glenn (“within 15 years green building goes away as a category”), the focus is more and more on creating a technological buffer to reshape the way we supply and demand.

So let’s focus on the technology that is going to get rid of the only color that deserves our attention – the black of oil and coal.