Climate Inc.

Following up on my previous post about the Gulf oil spill, Normal Accidents?, here is a guest contribution by Charles Perrow, Professor Emeritus of Sociology at Yale University, and author of the classic book Normal Accidents. This post is adapted from the preface to the forthcoming paperback edition of Perrow’s 2007 book The Next Catastrophe: Reducing Our Vulnerabilities to Natural, Industrial, and Terrorist Disasters, (Princeton, 2011).

by Charles Perrow

In 1984 I published a book, Normal Accidents (revised edition, 1999), that argued that we should abandon systems with catastrophic potential if they were interactively complex and tightly coupled, unless they could be redesigned to minimize these dangerous characteristics.  Complexity and coupling can be reduced through modular, rather than integrated designs, and catastrophic potential reduced through deconcentrating hazardous materials close to population centers or sensitive ecologies.  We might decide that some systems with catastrophic potential are so vital that the risk of a rare, but possible system failure is worth running.  Government officials felt that way about our nuclear defense system for many decades, steadily increasing the risks of a huge catastrophe.  I will argue that deepwater drilling, especially in ecologically sensitive areas, should be abandoned, because it combines complexity and coupling with catastrophic potential.

Interactive complexity is not simply many parts; it means that many of the parts can interact in ways no designer anticipated and no operator can understand.  Since everything is subject to failure, the more complex the system the more opportunities for unexpected interactions of failures.  Tight coupling means that failures can cascade through the system since the system cannot be stopped, fixed and restarted without damage; substitutions are not available, and failed subsystems cannot be isolated.

I do not think that the failure on April 20, 2010 of the rig built by Transocean and run by BP had a system accident (or “normal accident”).  While such rigs are very complex and very tightly coupled, it is more likely that faulty executive decisions resulted in knowingly running unnecessary and dangerous risks.  To be a system failure, in my definition, requires that even if everyone tries as hard as they can to operate safely, it is in the nature of complex, tightly coupled systems to inevitably (though rarely)  have the unforeseeable interaction of failures, usually small ones individually, that can cascade through the system.  This was not the case with the Transocean rig; BP management frequently overrode the objections and warnings of its own operators and engineers, and those of its subcontractor, Transocean, and independent consultants.  Nothing that transpired was unexpected.

BP has had a history of ignoring warnings by its own staff in order to cut costs.  A refinery explosion in 2005 and a massive oil spill in Prudhoe Bay, Alaska in 2006, resulted in (small) criminal penalties for executive malfeasance; the pipeline had a smaller spill last year, and there are currently strident warnings about the dangers of a massive spill on the pipeline in Alaska.  The firm had a close call in 2005 with its deepwater drilling Thunder Horse rig.

With this record, perhaps deepwater drilling is safe if the other firms engaged in it do practice safety.  It is hard to tell.  Exxon-Mobil is reportedly very concerned with safety after the Valdez accident, and said to be the industry leader in safety.  But it is not encouraging that in July of this year Attorney General Eric Holden was asked if BP was doing anything different than others in the industry.  He noted “certain commonality of the way oil companies had been operating” in the Gulf, but since the investigation of drilling is ongoing, he would give no specifics.  BP may be an extreme case of putting profits over the safety of their workers, the environment, and the viability of the firm, but disasters in the chemical industry have been increasing in recent decades, so one should not be reassured that BP is the only bad apple.

The Materials Management Service (MMS) reports there are 33 rigs that have permits for exploratory drilling in deepwater in the Gulf; 29 were inspected after the spill and no serious violations were found. One may be skeptical of their finding.  For example, MMS only recommends, but does not require, a backup blowout preventer (the preventer failed in the April 20, 2010 Horizon accident).  MMS does not set specifications for all pipes, allowing BP to use less safe pipes in its rig, and so on.  Furthermore, the unsafe practices in the Horizon rig occurred when the rig ran into trouble; inspection would not catch such bad practices.  We cannot be reassured that BP is an outlier and other firms would operate safely, though a news story about Exxon’s last minute abandonment of a project, the deepest drilling at the time, is encouraging.  Less encouraging is that another drilling firm bought the lease to the abandoned exploratory drilling and has continued to drill, but for two years has recovered no oil from what is expected to be a vast pool.

Perhaps we should be reassured that the Horizon accident has alerted the industry to the dangers of deepwater drilling sufficiently to make accidents extremely rare, and furthermore has led them to have adequate emergency response facilities on hand if there is the rare accident.  After all, the nuclear power industry appears to have made significant safety improvements since the TMI accident; could not the deepwater drilling industry improve as well?  A rebuttal is that nuclear plants in the U.S. continue to have near misses despite improvements, and are not as much endangered by storms and hurricanes. BP, at least, does not appear to have changed its safety provisions in spite of the Thunder Horse near-disaster on July 11, 2005, because of a pump valve installed backwards and cracks in underwater pipes because of shoddy welding, and its Atlantis rig is being investigated because of whistleblower charges of unverified engineering documents.

An argument against a ban on deepwater drilling is that the expensive rigs able to do this would simply move to other locations that have no ban.  It is similar to intensive policing in one area; it simply drives the criminals to other areas, thus we should make no effort to increase policing in the high crime area – an argument for inaction. Were they to move to Norway or Brazil, where drilling takes place, they would have to have stronger safety standards – e.g. a backup blowout preventer – than those required in the Gulf.  But they might move their rigs to other nations where standards are presumably below those of the Gulf, and where there may be ecosystems as vulnerable as those of the Gulf.  The only response to this argument, unfortunately, is that one has to begin somewhere, and the U.S. ban just might encourage other nations to tighten regulations.

A further argument has been put forth by the oil industry and state governments bordering the Gulf: the economic impact upon the area would be severe in terms of jobs lost and business activity associated with pumping, transporting and selling the oil.  But the effect upon oil-related jobs is not likely to be as severe as the effect upon non-oil activities.  Oil is capital intensive, with few workers per unit of capital; non-oil activities such as fishing and tourism are labor intensive.  More jobs are at stake in non-oil operations.

A final argument is that we need the oil; shutting down deep-sea drilling would raise the price of oil in the U.S. and make us more dependent upon foreign sources.  Raising the price of oil is to be encouraged.  A higher price of oil would mean that investments in non-carbon sources of energy, such as solar, wind, and geothermal would increase, as would investments in efficiency and conservation.  The price of oil should be much higher to encourage these investments.  Since a carbon tax is out of the question in the U.S., and a pollution tax on gasoline unlikely because of public opposition, and especially oil industry opposition, curtailing production is the next best step.  Another step, a bit more likely than a carbon tax, would be a steep tax upon imported oil, reducing our dependency by tipping the market away from imports.  The market at present is not a “free” one, since the true costs of burning oil are not reflected in its price – the “externality” of pollution is treated as a free good when it actually imposes a heavy tax upon citizens and their environment.

The interactive complexity and tight coupling of deep-sea drilling rigs is apparent; even if BP had not skimped on safety and not overridden the objections of their own personnel and those of their subcontractors, the system could have the rare but possible unexpected interaction of failures. They are inevitable since nothing is perfect.  Profit motives and lax regulation only make such disasters more likely.

As I write, the Deepwater Horizon well in the Gulf is once again gushing unchecked as BP tries to install a new cap that could end the spillage. A recurrent theme in the discussion of this massive spill is that we shouldn’t trust “fail-safe” technologies or the experts who reassure us that catastrophes cannot happen. Naomi Klein wrote in the Guardian that “This Gulf coast crisis is about many things – corruption, deregulation, the addiction to fossil fuels. But underneath it all, it’s about this: our culture’s excruciatingly dangerous claim to have such complete understanding and command over nature that we can radically manipulate and re-engineer it with minimal risk to the natural systems that sustain us. But as the BP disaster has revealed, nature is always more unpredictable than the most sophisticated mathematical and geological models imagine.” Klein quotes Carolyn Merchant, a professor at the University of Wisconsin at Madison and a noted proponent of deep ecology, as saying: “The problem as BP has tragically and belatedly discovered is that nature as an active force cannot be so confined. Unpredictable, chaotic events [are] usual [in ecological systems].”

Roger Witherspoon writes about the “Myth of Technological Infallibility” underlying the arrogance and hubris that led President Obama on April 2, 2010 to give his tragically ill-timed assurance that opening up offshore oil exploration was safe: “It turns out, by the way, that oil rigs today generally don’t cause spills. They are technologically very advanced.” EPA Administrator Dr. Lisa Jackson explained in a May 24 press conference that there was no federal oversight of emergency plans because “we were told over and over by the industry that it could not happen. So we have few tools out there.”

Witherspoon, like many others, linked the oil spill to the unknown dangers of rushing headlong into a new era of nuclear energy, in an effort to deal with carbon emissions. Witherspoon argues that the U.S. Nuclear Regulatory Commission shares the mindset of underestimating risks and being too close to the industry it regulates. For example, the NRC has belatedly recognized terrorism as a threat, but decreed that commercial nuclear operators do not have to plan for such an event because risks cannot be assessed and terrorism prevention is a federal responsibility.

Oil rigs and nuclear power plants are highly complex technical systems, in which the failure of one component can potentially cascade into a larger scale disaster. As oil rigs penetrate ever deeper waters to tap high-pressure deposits, it is difficult to assess the risks and build in adequate margins of safety. But these are not just engineering challenges: the oil and nuclear industries are woven into organizational, economic, and political systems; their technologies and production practices are shaped by market forces, bureaucratic operating procedures, and regulatory agencies. They are complex dynamic systems with unpredictable behavior when certain thresholds are crossed, just like the climate and the economy (as I discussed in A Tale of Two Meltdowns).

Detailed case studies of various disasters by organizational sociologists reveal a common pattern of how complex technologies interact with organizational processes and routines, hierarchical power structures, pressures to cut costs, and lax oversight. Together, these can lead to inertia, distorted cognition, the neglect of warning signals, and poor decisions. In engineering-intense organizations, there is often a hyper-masculine culture in which expressions of concern about risk are treated with scorn. Normal Accidents, Perrow’s classic study of the nuclear accident at Three Mile Island, concluded that catastrophic accidents were “normal” in the context of highly complex socio-technical systems. Even the most carefully designed safety systems could not always prevent the interaction of human and technological failures from cascading into major calamities. Perrow describes in vivid detail the managerial pressures to ignore risks, to stay on schedule and keep costs under control. Perrow found that information available to decision makers was inadequate, delayed, and sometimes inaccurate, and often subject to misinterpretation under crisis conditions. When people do intervene, there are frequently unanticipated effects that exacerbate matters. Diane Vaughan’s analysis of The Challenger Launch Decision demonstrated very similar characteristics.

Perrow concluded that the unpredictability of complex systems make the risks of nuclear power fundamentally unmanageable, and there are voices expressing the same attitude toward deep sea drilling. But do we have to embrace the deep ecology position that nature “cannot be so confined”? Nature is reliably confined and controlled in the combustion chambers powering cars, planes, and electric power generation. The economy cannot be precisely controlled, but it can be steered. Of course, using historical experience to guide for future decisions in relation to low-probability but high impact events can underestimate risks, especially when technologies are pushing new frontiers.

But there are no absolutes here: the question is always how reliable are the systems, and what are the consequences of catastrophic failure, in time and geographic reach?  Failures cannot be eliminated from complex systems, but they can be managed to tolerable levels. Lean production systems employ statistical process control and input from workers to improve quality and reliability, from the component level to the whole production process. In my doctoral thesis work, I studied how this approach could stabilize international supply chains which had been subject to chaotic disruptions. The Federal Aviation Authority examines airplane safety records and mandates technical as well as procedural changes.

In general, there has been too little attention to the non-technical aspects of risk management, the economic and organizational pressures and wider governance systems. Yet the overall safety record for risky technologies is not bad. More than 4000 offshore oil platforms operate routinely in the Gulf of Mexico alone, and it has been over 30 years since the last major offshore blow out. France has operated 59 nuclear power stations for decades without major catastrophe. About 50,000 commercial flights are operated each day around the world.

If BP succeeds in installing the new cap and staunching the oil flow in the next week or two, this will count as a major regional disaster, but not necessarily one that should prevent all offshore drilling in the future. Within a couple of years, bacteria will have digested most of the oil, and life will return to the coastal regions. There are technological, political, and economic lessons to be learned, and with a bit of luck, we could go another 50 years till the next big blowout.

The risks associated with oil are modest compared with nuclear power and weapons production. Even if power plants can be operated safely, the waste disposal problem remains stubborn. The New York Times recently reported that “the amount of plutonium buried Hanford Nuclear Reservation in Washington State is nearly three times what the federal government previously reported.” Production of plutonium stopped at the 560 square mile site in the 1980s, and clean up has barely begun because nobody seems to know exactly what was dumped where, or how to deal with contaminated soil. Plutonium is highly toxic and can slowly seep into groundwater and the Columbia river. With a half-life of 24,000 years, it needs to be contained for eons of time during which civilizations, languages, and the climate will all undergo profound shifts.

There are some rumors circulating on the web that the BP blowout could trigger a massive release of methane, unleashing tsunamis and toxic gas clouds that would cause massive devastation to the region. A frightening scenario indeed, but the most credible report I can find does not see this as a serious threat. The real risk is that we get back to the business of safely pumping and burning oil and gas as usual, pushing the climate through critical thresholds and triggering global, irreversible changes.

The deep ecology position itself carries some hidden dangers. It reflects the same kind of deep populist distrust of scientific expertise that has animated climate deniers (and which this week’s report clearing the U. of East Anglia scientists of major wrongdoing will do little to allay). And the claim that the existing order is “natural and sacred” has traditionally been used by elites to justify the status quo. Progressive politics demands that we “denaturalize” our systems of production and governance, our assumptions about hierarchy, and our faith – and fears – of science and technology. Progressive politics requires that we be alert to the ways in which science and technology are embedded in social, economic, and political systems, and that we actively manage these systems to transition to a more socially, economically and environmentally sustainable system.

True stories of the hidden barriers to residential energy efficiency

“In essence, the rebate on the boiler (which I’ve already paid for via a surcharge on my electricity bill) is captured by the plumber”

by David L. Levy

This week the temperature hit 90F in Boston, and after appropriate procrastination, I finally started replacing the winter clip-on storm windows with fly screens. We survived another winter with our antiquated and rusting steel casement windows in Brookline, Mass. These single pane windows, which date to the1951  construction of the house, are wintertime energy hogs – they are drafty, provide no insulation, and get covered in icy condensation. We were paying more than $600 a month in the coldest part of the winter, and that’s with my sophisticated solar thermal management system: we have huge south-facing windows, so I raise the blinds when the sun is shining to keep the house comfortable in winter, and lower them for some insulation at night (reverse in the summer…).

In an earlier confessional, I explained why we have not yet splashed out the $20,000 to replace the old windows with new energy efficient ones. The return on investment is only 2% at best, and who knows how long we’ll be in the house, or whether new windows would add much to the sale price. Somehow my own personal experiences don’t square with the conventional wisdom on energy efficiency, which is that substantial reductions in energy use (and greenhouse gas emissions) can be obtained while the investments more than pay for themselves in cost savings (i.e. have positive RoI). McKinsey issued a report in July 2009 claiming that “the U.S. economy has the potential to reduce annual non-transportation energy consumption by roughly 23 percent by 2020, eliminating more than $1.2 trillion in waste – well beyond the $520 billion upfront investment that would be required. The reduction in energy use would also result in the abatement of 1.1 gigatons of greenhouse gas emissions annually.”

As Mark Sarro and Jurgen Weiss explained in their guest post last year, the actual costs may be higher than engineering estimates suggest and there are a host of market, institutional, and psychological barriers. McKinsey acknowledges some of these barriers, though they emphasize a lack of financing and the presence of market failures, such as the owner-renter problem and the limited time horizon of residential owners. Most existing efficiency programs at the city and state level, such as Property Assessed Clean Energy (PACE) address these specific issues. My own experiences, however, lead me to think that, in the residential buildings market, an important but overlooked part of the problem is the high retail cost of efficiency investments, due to small scale and lack of competition.

This point was reinforced by my investigation this winter of options to replace our antique oil furnace. I was stirred to action by a confluence of three events: a promotion arrived in the mail from National Grid promising a 60% discount on a new energy efficient gas boiler, and up to $1500 extra tax credit for a very high efficiency product. Second, the oil company maintenance person said we need to put nearly $1000 into various repairs on the old oil guzzling beast. Third, I began teaching my new MBA Business and Climate Change course and thought that I should make at least some effort to walk the talk. A high efficiency gas boiler promised energy savings of around 15% on efficiency grounds, on top of which gas is currently about 30% cheaper than oil per BTU. The switch to gas would also mean burning a less carbon intensive fuel. With new furnaces running at about $2000 without a subsidy, here was an investment that would burnish my tarnished environmental credentials while appeasing my inner hedge fund manager.

I called the National Grid number, and was assigned a local plumbing company to come by and give us an estimate. The plumber proceeded to recommend an Energy Star high efficiency (85%) Burnham boiler for only $822, including tax, after the 60% rebate. When I asked about installation costs, I got the usual consolation look that electricians and garage service people seem to have perfected prior to giving an outrageous estimate. After poking around a few pipes and the flue, he gave me an estimate of $9200 for installation, plus a few hundred for carting away the old oil tank. Oh, and $1900 for a new gas line into the house, giving a total of well over $12,000.

When I asked about the ultra high efficiency (95%) burners, I was informed in no uncertain terms that this would be a big mistake – these would be less reliable, suffering problems with acidic condensation, and they would need a special flue. Remember, this is the sales pitch from a plumbing company assigned by National Grid for efficiency upgrades! The extra $1500 tax rebate available on these would be more than offset anyway by the higher installation and purchase cost. In any case, didn’t I want some “wasted” heat to keep the basement warm in the winter? We do use it for hanging up clothes to dry, cutting back on our electricity-hungry drier. And our basement boiler sits directly under the living room, keeping the floorboards warm. In any event, the ancient oil relic claims around 78% efficiency on the tag hanging on it, so maybe the energy savings are not so high.

This was a useful lesson for me and for my MBA class. Why the high costs? The old system had accumulated lots of extra pipes and valves over the years, to accommodate several new rooms, making a new installation more complex. Then there are the new regulations, which require a new flue lining and external vent. But I still suspect that the cost estimate is inflated by the lack of competition: National Grid specifies the plumber from their list of preapproved contractors. I found out afterwards that, in principle, I could find my own qualified plumber, but that’s extra hassle (i.e. transaction costs). In essence, the rebate on the boiler (which I’ve already paid for via a surcharge on my electricity bill) is captured by the plumber, who can inflate charges because of the relationship with National Grid. For comparison, I got a quote of $6300 for a new high efficiency (also 85%) oil boiler, all inclusive. Going with gas I save $1200 on the rebate, but pay about $3000 more for installation.

There are clearly some market barriers and problems with existing energy efficiency promotion programs that are not being recognized. One idea we came up with in class to squeeze costs out of the system Walmart-style was to aggregate residential upgrades together. National Grid could bundle 100 jobs into a larger contract that it would put out to bid. Other suggestions included a surcharge, or systems benefit charge, on heating oil to fund upgrades, or a multiyear guaranteed price contract for natural gas. A third is to require houses for sale to undergo an energy audit, and provide relevant numbers, as on a new car or refrigerator. This would help ensure that upgrades get reflected in market value. (Yet the real estate industry is opposed, and a similar measure in the UK was recently repealed.) Note that none of these require direct subsidies – rather, they address the barriers and market failures.

There is also a lesson here on the increasing marginal cost of carbon reductions. If I get new windows, the marginal benefit of replacing the boiler is goes down. When I grab some low hanging fruit, some of the other fruit gets a bit harder to reach. It also illustrates what economists call the rebound effect: if I make the house more efficient, I’ll take some of the benefit in the form of more comfort, keeping the house a bit warmer in winter, a bit cooler in summer. I’ve noticed this myself with compact fluorescent lighting: I used to be a “turn-off-the-lights” nudnik, but am less zealous for a 13 watt bulb than for 60.

Several months later, summer is here, the boiler is silent, and there is no pressure for a decision. As with the international climate negotiations and national cap-and-trade legislation, inertia is the default option. At least I’m ruminating on policies that will stir me to action.

My colleague and retired MIT professor John Ehrenfeld writes a very thoughtful blog called Sustainability by Design (and he has a recent book with the same title). John and I share some similar interests in complex systems, consumer culture, and the limits of business sustainability – he makes the important point in his writing that sustainability is a function of our socio-economic system – the concept has little meaning at the company level.

Below I’m reprinting a post  of his about the contradictions of building ‘green’ mansions – with buildings, cars, planes, appliances, and other products, we seem stuck on a treadmill of efficiency improvements offset by growing consumption: bigger houses, more cars, more plane travel, more gadgets, etc. I’ll be following up soon with a post about my own experience of trying to upgrade my own energy-sink of a house!

The “Green” House Effect

By John R. Ehrenfeld (link to original post)

The NY Times carried a story on March 10 about a controversy over plans to build a very large home in Berkeley, CA. The plans which have been approved show a total area of about 10,000 square feet, of which 3,500 are for a garage. The owner, Mitch Kapor, is the founder of Lotus and has used his ample wealth for many philanthropic ends including many concerned with the environment. Perhaps he lost so much of his money in the crash that he plans to operate a public parking lot.

The controversy here rose from the designation by a city board that the house qualified as being “green.” Such designation comes via an evaluation scheme that gives points to green features of a building, for example, the use of low-flow faucets and low-volatility paint. The Kapor plan received a score of 91 points, far above the minimum of 30 needed to qualify for a green designation.

The architect noted Kapor’s environmental largess but offered no details on the process. Neighbors and others are appealing the decision to approve the plans. Another architect, William Harrison who builds big houses for wealthy clients is quoted as defending the practice.

William H. Harrison, an Atlanta architect with a stable of wealthy clients, said penalizing people for building large houses could slow the adoption of green building practices. “The people who can afford the green technologies are going to want large houses,” he said. And those innovations, he said, will trickle down to smaller houses.

Mr. Harrison said that one of his clients is planning to build a 25,000-square-foot house in Los Angeles. But he opted out of the LEED system, Mr. Harrison said, when he learned that it was virtually impossible to get the highest LEED rating, known as platinum.

“He’s a billionaire, and he drives a Prius, for God’s sake,” said Mr. Harrison of his client. “He wants to do the right thing, environmentally. And now he’s being told, ‘You’re not good enough, because your house is too big.’ ”That, Mr. Harrison said, “is about socialism, not sustainability.”

Harrison misses the point entirely. It’s not at all about goodness or intention. It is simply a matter that such large houses create enough negative impacts to overcome the benefits by implementing green features whether according to the LEED or any other scoring system such as is used in Berkeley. What this has to do with socialism is beyond me.

In a 2005 article on the environmental impact of house size in the Journal of Industrial Ecology (Disclosure: I am one of the editors of this journal), the authors, Alex Wilson and Jessica Boehland say:

As house size increases, resource use in buildings goes up, more land is occupied, increased impermeable surface results in more storm-water runoff, construction costs rise, and energy consumption increases. In new, single-family houses constructed in the United States, living area per family member has increased by a factor of 3 since the 1950s. In comparing the energy performance of compact (small) and large single-family houses, we find that a small house built to only moderate energy-performance standards uses substantially less energy for heating and cooling than a large house built to very high energy-performance standards.

The article continues with data that show that the impact of house size is not linear; the impact increases disproportionately with size. A house twice the size of the average dwelling (about 2,500 square feet) would typical have about three times the impact based on the materials used in construction. Heating and cooling energy use depend on the details of the design and cannot be compared in a general way.

There’s another very important lesson here besides the substantive issues of the actual environmental impact. Green scores simply do not tell the whole or even enough of the environmental story to be meaningful. There is always an “other things being equal,” qualifier in the background. In this case it would be another 10,000 square foot house using less effective features. The billionaire’s Prius sounds good compared to a Hummer, but can’t come close to a bicycle’s low impact. I say this not as a value judgment on the choice of a large house, hybrid vehicle, or anything for that matter, but as a criticism of the utility of scores as valid indicators of greenness. Quantity or volume almost always trumps lower scores.

One of the best speeches I’ve heard on clean energy business opportunities was not given by a cleantech executive or venture capitalist, but by Michael Beard, the fictional character at the center of Ian McEwan’s new novel Solar. Beard is a physicist who earned his Nobel laureate for an early brainwave, but is cruising through middle age as a short, overweight, and balding hedonist devoted to his alcohol, food, and infidelities, while puffing his ego and bank account with titular positions on various organizations and governmental committees.

You can read more literary reviews of Solar in The Guardian, The New York Times and elsewhere, but these tend to neglect the intimate and acute satire with which McEwan portrays the clean tech business world and the business-climate-academic interface. Some of the reviews suggest that Beard is depicted as a loathsome one dimensional caricature consumed with lust and gluttony, though I found McEwan’s anti-hero, from whose perspective the entire book is narrated, more nuanced, even empathetic. Perhaps it’s a function of familiarity with this milieu and its cast of characters, with their heady mix of save-the-world rhetoric, ego and ambition. The glimpse of self-recognition yields chuckles and goosebumps.

Beard transforms from disgruntled climate skeptic to fervent advocate and cleantech entrepreneur when he acquires the work of a junior colleague, who meets an untimely death. The technology with which Beard and his business partner, Hammer, promise to save the world is artificial photosynthesis, using the sun’s energy to generate hydrogen directly from water. This is far from science fiction, but also in the book, as in reality, far from commercialization. The technology, at first glance, bears an uncanny resemblance to the artificial photosynthesis work of MIT’s professor Daniel Nocera and postdoctoral fellow Matthew Kanan, which was heralded in Technology Review as Solar Power Breakthrough. A close reading reveals the hype in the real cleantech world, as Nocera’s technology is actually an efficient process for using electricity to split water into hydrogen and oxygen. By itself, it has little to do with solar power, but combined with a fuel cell it can provide an energy storage system to complement intermittent renewables. Beard’s technology is closer to the approach being pioneered by Prof. Stuart Licht, a former colleague at my own institution, UMass-Boston.   (more…)

A few weeks ago I ran into David Weinberg, President of Apogee Solar, a solar energy developer in Connecticut and Massachusetts. I was intrigued by his company’s business pitch: to provide solar installations at no up-front cost to customers and then enter a long-term agreement to sell power to the customer at a heavily discounted price. In Massachusetts we are paying around 18c/kWh for retail electricity, the highest rate in the country outside Hawaii, and the University of Massachusetts, Boston, my employer, is in the process of planning and constructing a series of new buildings which we hope to make as green as possible. This could be a highly attractive model for commercial customers who don’t want to divert scarce capital away from their core business, and are happy to transfer the headaches and business risk of solar generation to a third party. Because solar power is distributed, it only needs to compete with the “behind the meter” retail electricity price, not the wholesale price of power of about 5-7 cents/kWh in this region.

Yet I was skeptical regarding the business model. I know that intense competition and large scale production have been driving down solar prices in the last couple of years, but I’ve still been reading total installation costs of about $6-8 per peak watt (pW). Yet it seems that prices are now even lower than that. Solarbuzz, a solar consultancy, reports that average retail module prices in May 2010 have fallen to around $4/pW, but that the lowest cost multi-crystalline modules are now $1.74/pW retail, while mono-crystalline is $2.07/pW. Inverters, balance of system, and installation add another $2.50 to $3/pW. Installation on parking canopies rather than rooftops adds another $1/pW or so.

Even with total installed costs as low as $4.50 to $5, and a 30% credit on capital costs thanks to the generosity of US taxpayers, the numbers still didn’t add up. What makes Apogee’s business model possible is the value of solar renewable energy credits (SRECs). US states that enact renewable portfolio standards (RPS) have created local markets for renewable energy credits, allowing utilities to meet their requirements by buying RECs. In order to stimulate solar, a number of states have created “solar carve outs”, i.e. a separate standard for solar energy with its own SRECs, which have initial market prices in the 30-60c/kWh range – Massachusetts has set a floor price of 30c/kWh (astute readers will observe that SREC is an anagram of SERC, our very own center for Center for Sustainable Enterprise and Regional Competitiveness here at UMass-Boston).   (more…)

UMass-Boston celebrates new Center for Sustainable Enterprise and Regional Competitiveness (SERC) with “Green Education for the Next Generation” events

On Saturday night, May 1^st, UMass-Boston celebrated the launch of our new Center for Sustainable Enterprise and Regional Competitiveness (disclosure – I’m the director) and other sustainability initiatives on campus with a gala dinner featuring keynote speaker Gina McCarthy, a graduate of UMass-Boston and currently the EPA’s Assistant Administrator for Air and Radiation. In this capacity, she directs EPA’s policy on climate change.

Gina McCarthy gave a powerful and passionate talk, highlighting the EPA’s achievements on clean air, energy efficiency, and climate change, while pointing to the challenges ahead. She also discussed the important role played by UMass-Boston in her own education and now in training the next generation of environmental leaders. Ms. McCarthy put climate policy in the context of the huge oil spill near New Orleans and federal approval last week for the Cape Wind project. More than two hundred people attended the event in the new Campus Center, which offers stunning views over the Boston harbor.

In order to promote “Green Education for the Next Generation,” UMass Boston also hosted a panel discussion on Friday April 30^th focusing on the prospects for “green jobs,” clean-tech regional competitiveness, the role of “green education” and the value of collaborations among universities, business, and government agencies.

Giving presentations were:

David Cash, Assistant Secretary for Policy in the Massachusetts Executive Office of Energy and Environmental Affairs

Daniel Moon, President and Executive Director of the Environmental Business Council of New England

Kathleen J. Freeman, Director Environmental Affairs, NSTAR Corporation

Robbin Peach, Executive Director of the Collaborative Institute for Oceans, Climate and Security

R. J. Lyman, partner at Goodwin Procter

The event was moderated by Dr. Robert Massie, former director of Ceres and founder of the Global Reporting Initiative. Robbin Peach showed a video about the climate-security connection.

And while we are into shameless self-promotion, here I am on New England Cable News last week for Earth Day, talking about green jobs and green education!

A business school perspective on the forces that shape perspectives on climate change

By David L. Levy

Progress toward building a coalition supportive of aggressive action on climate change seems to have become mired in spring mud. In an earlier posting, I discussed the sudden change in climate in the wake of “climategate”, the cold winter in Europe and the US, the defection of BP and other companies from the US Climate Action Partnership, Scott Brown’s upset senate victory in Massachusetts senate, and rise in climate skepticism. Recently the mass media have begun to look at the reasons for the rise in skepticism. Ever aware of their own importance, they have turned the spotlight on the gulf between weather forecasters, who are mostly meteorologists, and climatologists. Even the Colbert Report joined the fun with a “weather forecaster vs. climatologist” confrontation.

A Columbia Journalism Review article on this topic cites an Emory University survey of  TV meteorologists in which 29% of respondents said that global warming was a scam, and only 24% percent believed that humans were responsible for most of the change in climate over the past half century. A more recent piece in the New York Times pointed to a study in the January 2009 newsletter of the American Geophysical Union, which found that while nearly 90% of some 3,000 climatologists who responded agreed that there was evidence of human-driven climate change, only 64% of meteorologists agreed with the statement.

In trying to explain this gap, most of the blame has been placed on the lack of expertise and scientific training of weather forecasters, few of whom have a graduate degree. Joe Romm commented that: “Asking a meteorologist to opine on the climate is like asking your family doctor what the chances are for an avian flu pandemic in the next few years or asking a mid-West sheriff the prospects for nuclear terrorism.” My business school background, however, leads me to ponder explanations that are rooted in some of the more subtle mechanisms of organizations and institutions.    (more…)

Potential exists for energy efficiency despite consumer disinterest

This is a guest contribution by my colleague Dr. Werner Kunz, Assistant Professor of Marketing at the University of Massachusetts, Boston. Professor Kunz recently collaborated with consultants A.T. Kearney in a survey-based study demonstrating little consumer interest but the potential for energy efficiency in the industry.

Marketing experts know that the customer ultimately decides what will be produced in the marketplace. Thus, consideration of the customer’s point of view is critical for  success in business. If sustainability and climate change are increasingly important for the customer, companies need to react and adjust their strategies, even if there are costs involved.

But what happens if customers do not care about environmental impacts, at least in relation to a particular market? A recent study by A.T. Kearney in cooperation with the College of Management, UMass-Boston, shows that only 1.5 percent of the customers in the mobile telecommunications industry place significant value on the environmental efforts and social initiatives of their operators. Most customers do not see the mobile communication industry as a major environmental problem, or look to it for environmental leadership.

So does it make sense for the companies in this industry to pay more attention to energy and the environment? One major reason for the low consumer interest more environmental friendly is lack of knowledge. As the study shows, one-hour of mobile phone use, including related network-wide resources, consumes almost the same power like a washing machine at 100°F. From a marketing as well as energy use perspective, there are critical reasons for mobile telecommunication companies to become more green.

First, it would be very risky for the telecommunications firms to bet that consumers will remain ignorant and indifferent. As more companies move toward measuring carbon and labeling products, consumers are likely to take more interest in the environmental performance of a broader range of products and services. Second, a company that starts today to prepare for a low-emissions future can more efficiently plan investments and the deployment of new assets to achieve these goals. The emissions reductions can be substantial.

Such initiatives can be done thoughtfully and systematically, because in the future they will be a necessity anyway. The advantage is that strategic marketing management offers great branding opportunities as an environmentally friendly company, as well as significant cost savings and emission reductions. The study can be downloaded here (in pdf format).

Smart cities need smart buildings connected to a smart grid. The business opportunities associated with Demand Response, smart buildings, and smart grid have been gaining a lot of attention recently, with articles just last week in The Economist and Barron’s. Last summer a Cisco executive caused some ripples by forecasting that the convergence of IT and power systems would present a bigger opportunity for the company than the internet. Barclays Capital recently forecast that smart grid revenues from metering, monitoring devices and communications technology could reach $40 billion a year by 2015, compared with less than $10 billion today. Smart grid ought to yield substantial carbon reductions at negative cost, i.e. the investments pay for themselves with a relatively high IRR.

Yet there are substantial behavioral, institutional, and financial barriers. As I’ve discussed in this blog post, there may well be free lunches available, but they are hidden away behind misaligned incentives, inertia, and market barriers. Consumers are often unaware of the potential cost savings, cannot afford the upfront costs, or fear that home efficiency upgrades will not add much to the market value of a home. For renters, new construction, and commercial property, the people who pay energy bills are often not the same people as those who design buildings or invest in efficiency. At our university, capital budgets for buildings and operating costs come from two separate pockets that don’t necessarily communicate. In the corporate world, few have traditionally paid much attention to potential energy savings because nobody was paid to do so.

Demand response systems raise some particular issues relating to fears regarding privacy and corporate intrusiveness. The Economist article highlights a survey by Parks Associates, a Texas-based market-research company, that indicates that only 15-20% of US consumers would be willing to sign up for DR programs that enable utilities to control their thermostats. Yet the survey also shows that over 80% of households would pay up to $100 for cost-saving equipment if it chopped at least 10% off their monthly electricity bills. Utilities, however, are still in the business of selling electrons, and incentives for energy efficiency, such as California-style rate decoupling, is only making slow progress toward adoption in other states.

Real-time feedback to customers on the price and quantity of electricity they are using can help cut consumption, and new devices can give an analysis by appliance, illustrating the savings from cutting usage or running appliances on lower-cost night-time power. Google announced last year that it’s developing software package called Powermeter to provide real time information about home energy usage by communicating with household devices. But few appliances are ready for smart meters, standards don’t yet exist for Google or other smart meter devices (Google just released the API in early March 2010), and systems will cost several hundred dollars per home. Moreover, as The Economist points out, trying to run a home using this information could become a complex and time-consuming job.          (more…)