Dave's Energy

Thursday, December 08, 2005

Will industry play an active role in clean energy?

Historically, when it came to cleaner emissions standards, government has led the charge. Business, on the other hand, has typically balked at the costs associated with compliance; the debates over legislation pertaining to clean diesel and mercury emissions come to mind. But industry's staunch opposition to "clean energy" may potentially be softening. General Electric, led by CEO Jeffrey Immelt, has a new idea: instead of resisting green energy, profit from it. Whether it's a real shift in priorities or simply timely PR remains to be seen, but if the economics make sense for GE, perhaps we are closer to the inflection point where industry can go greener (a very relative term) without going out of business.

The following is from the December 10th, 2005 edition of The Economist (see the whole issue for more):

"NEXT month General Electric's corporate bosses will drop a bombshell on the hard-charging managers of its global businesses. In future they will be judged not only by all the usual measures, such as return on capital, that investors typically care about: they will also be held accountable for helping to save the planet.

Every GE business unit will have to cut its emissions of carbon dioxide (CO2), the main greenhouse gas (GHG) behind global warming, by a different target. Energy-intensive divisions such as plastics and locomotive manufacturing will need to make big cuts in emissions, while the paper-pushers at the group's financial-services divisions will be told to aim at smaller, but still ambitious, cuts.

GE's new goal is to cut its overall GHG emissions by 2012 to 1% below their level in 2004. That might not sound ambitious, but if no climate policies are enacted, the company's projected revenue growth would increase its GHG emissions by 40% above 2004 levels. The firm also vows to cut the intensity of its GHG emissions (that is, the amount of GHG emitted in terms of its economic activity) by 30% by 2008. By comparison, the UN's Kyoto Protocol calls for Europe to reduce its GHG emissions by 2012 to 8% below the 1990 level and George Bush's voluntary climate scheme calls for an 18% cut in America's GHG intensity from the level in 2002 by 2012.

The new campaign makes some extravagant promises. The company vows to double its revenues from 17 clean-technology businesses, ranging from renewable energy and hydrogen fuel cells, to water filtration and purification systems, to cleaner aircraft and locomotive engines. This would take such products from $10 billion in sales in 2004 to $20 billion by 2010, with more ambitious targets thereafter. To get there, Mr Immelt has promised to double research spending on clean products, from $700m per year to $1.5 billion, by 2010. (GE's total research expenditure was $3.1 billion in 2004 and its revenues were $152.4 billion.)

Most striking, however, is GE's new position on climate change, an issue that divides corporate America. Some large industrial groups have long argued that the climate problem is real. Three dozen such big firms—including DuPont, United Technologies and Whirlpool—have been united by the Pew Centre on Global Climate, a non-partisan charity, to lobby for action by America's federal government to curb CO2 emissions. Many others, notably Exxon-Mobil, but also much of America's coal-burning utility sector, have remained deeply opposed to any such efforts—as has President Bush. Awkwardly, many of those utility firms are GE's customers.

Mr Immelt is so convinced that clean technologies will be the future of GE that, invoking the colour of American money, he has made his new mantra: “green is green”. If he is right, then not only will GE benefit, but businesses everywhere will have to follow in its tracks in one form or another. If he is wrong, Mr Immelt will have led one of the world's biggest and most powerful companies down a dead-end, and the cost to its reputation, if not its financial performance, is likely to be huge."

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