Net Zero Business Strategy
This post is the first in a series that provides guidance to business executives and managers in a world where the climate is changing so drastically.
If something cannot go on forever it will stop.
Howard Stein
There is no shortage of articles, web sites, blog posts and podcasts that describe the climate crisis. Most of these articles describe the causes of the crisis and what the consequences are likely to be. However, there are far fewer articles that develop realistic responses as to how we can respond (the word ‘realistic’ crops up a lot in this book). The general conclusion in these articles is often on the lines of: ‘We, or sometimes ‘they’, should do something’. Who ‘we/they’ are, and just what the ‘something’ might be is either left unspecified or is completely impractical. For example, many climate activists say that we should do away with fossil fuels (or at least ‘phase them out’ quickly). The following quotation is representative of this way of thinking.
We need to demolish and dismantle the fossil fuel industry by 2030. We know what to do. We know how to do it.
The short answer to this statement is,
No we don’t.
People who make statements such as this do not seem to appreciate that the fossil fuels (coal, natural gas and oil) are utterly foundational to our current way of living. They provide the energy and resources that allowed the world’s population to grow from about 2 billion a hundred years ago to 8 billion now. If we were to ‘dismantle the fossil fuel industry by 2030’ he resulting suffering would be appalling. Moreover, fossil fuels are essential for the construction, operation and maintenance of alternative energy sources such as wind and solar farms. Without steel and cement ― both of which require large amounts of energy during their manufacture ― wind and solar farms could not be built or operated.
Another issue that activists tend to overlook is that around 10-15% of the products of an oil refinery are petrochemical feedstock. These feedstocks are transferred to the chemical plants that make the thousands of products that are essential to modern life, including anesthetics, mobile phones, air conditioning and food preservatives. We cannot convert the world’s oil refineries to produce these feedstocks without making fuels at the same time. We also need to recognize that natural gas provides the basic material needed for the manufacture of nitrogen-based fertilizers. Those fertilizers are a major factor in the world’s population growth.
Give this background, the above quotation should be modified as follows,
We need to demolish and dismantle the fossil fuel industry by 2030. We know what to do. We know how to do it. We hope that we can do so without drastically reducing our standard of living.
Climate activists frequently blame businesses, particularly the large energy companies, for the climate crisis. There is some merit to their accusations ― it does appear as if some of the large energy companies knew about climate change for many years, but that they chose not to publish their findings. Had they done so, the transition to alternative energy sources could have been less disruptive than it is now. Even now, some energy companies are still trying to downplay the significance of the crisis.
But the reason that companies continue to manufacture and sell products that create greenhouse gases is that we, the public, want those products. We want to drive personal vehicles, we want to fly across the country at an affordable price, we want advanced medical treatments to be available to us. If the leaders of a business choose to ignore what their customers want then their company will soon be out of business and they will be looking for employment elsewhere.
In this situation these leaders are presented with two challenges ― each of which is can be expressed in the form of a question. They are,
How do we change the fundamentals of our business, while maintaining short and medium-term profitability?
What alternative energy sources are available that provide us with the benefits of fossil fuels, without the climate change impacts?
The first of these questions is one that business leaders face all the time. Markets and technology change all the time. These are perennial challenges. They are not specific to the climate and energy crises.
With regard to the second question, business leaders have to respond; the laws of thermodynamics give them no choice. The climate has already changed significantly as a result of human actions, and it will continue to change, regardless of the actions that we take now. That is a business reality.
A second reality is that none of the alternative energy sources provide the benefits of fossil fuels. In the succeeding chapters we will examine many alternative energy sources, some of which are already widely used. All have their advantages, and all have their place in the future energy mix. But none of them can effectively replace the fossil fuels, particularly crude oil.
Many businesses are adopting new energy sources that fit into their existing business profile. This will allow them to make the transition while using their existing expertise and infrastructure. Three examples come to mind.
Civil Aviation
Today’s commercial aviation business is totally dependent on the availability of jet fuel ― a major source of greenhouse gases. It is possible that battery technology will advance to the point where electrically-powered airplanes are feasible in limited circumstances. The same goes for hydrogen as a fuel. However, both of these alternatives have a poor power to weight ratio, therefore, this industry will continue to rely on hydrocarbon fuels. Therefore, many commercial aviation companies are investing heavily in the use of biofuels, which they refer to as Sustainable Aviation Fuels, or SAFs.
Hydrogen
Many traditional energy companies are investing in hydrogen technology. They already use hydrogen in significant quantities, so they are used to handling it. It is also feasible that they could convert many of their existing natural gas pipeline systems for hydrogen use.
Electric Vehicles
Automobile companies continue to invest heavily in Electric Vehicles (EVs). Doing so allows them to use their existing manufacturing facilities and marketing networks.
In all cases, the transition to a new energy source is far from simple, and success is hardly guaranteed. Indeed, the actions being taken may not ultimately reduce net greenhouse gas emissions. For example, the use of biofuels/SAFs for air transport creates at least two concerns. The first is that immense amounts of land will be needed to grow the corn and other vegetable matter that the program will require. That land could be used for growing food, or for a nature reserve. The second difficulty with the use of SAFs is that they do not actually reduce the amount of carbon dioxide being added to the atmosphere ― they merely recycle it. SAFs do not contribute toward net zero.
The purpose of arguments such as these is not to discourage companies from making a transition to a new and rather scary world. (If they are to stay in business, they actually have little choice.) The purpose is to show that we are dealing with very complex systems, and the reality is that there is no direct substitute for the fossil fuels.
After reading Charles Darwin’s On the Origin of Species in the year 1864, Herbert Spencer (1820-1903) coined the widely-used phrase ‘Survival of the Fittest’. The term implies that the strongest will survive in a competitive environment, whereas the weaker will be muscled out. The same idea is often applied to businesses, and the manner in which they compete with other organizations.
When the environment (either natural or business) is stable then the fittest do indeed survive and prosper. However, when the environment is changing radically ― as it is doing now ― it is the most adaptable that will survive. In such circumstances a better phrase would be ‘Survival of the Adaptable’. The individuals within a species that can best adapt to the new circumstances are more likely to survive and reproduce, thus passing on these attributes to future generations. Similarly with businesses ― those that are successful will adapt to new conditions rather than being better at what they do now. For example, many modern management systems feature Just in Time (JIT) programs that reduce the inventory of spare parts and intermediate products. Doing so reduces costs and improves efficiencies. In the world that we are entering, one which is disrupted by climate change, companies that thrive may favor resilience over efficiency. Currently, the managers of these companies may find that keeping a large number of spare parts is inefficient ― they tie up money and warehouse space. But if supply chains become less reliable then reversing this strategy may be a better strategy.
As we got to the point where we realized that there was no way to cap global warming at two degrees without a significant amount of carbon capture we then realized that there was an opportunity for us to go further with our anthropogenic plan and make it into a business.
Ultimately, I don’t know how many years from now, Occidental becomes a carbon management company and our oil and gas would be a support business unit for the management of that carbon.
Vicki Hollub (1960- ). CEO Occidental
