By: Kelly de la Torre and Jan MazottiIssue: Vision Section: Business
An Interview With Jigar Shah and The Carbon War Room
Scientists are more confident than ever that climate change is causing negative effects such as sea level rise, stronger storms, and drought—to name just a few. These extremes can and have already had devastating effects on society and the global environment. The good news according to Jigar Shah, CEO of The Carbon War Room, is that we can mitigate the effects of climate change by deploying existing and cost effective technologies and create wealth at the same time. The target is huge—business and consumers alike must reduce emissions by 17 gigatons by 2020 is paramount. However, our opportunity to do well by doing good is even bigger.
Shah and The Carbon War Room have their eyes on this target. To launch the attack, The Carbon War Room has identified seven theaters that are material to winning the war against climate change. Each battle represents over 1 billion tons, or more than 2 percent, of global anthropogenic CO2 emissions annually. To be clear, the question is not whether we have the technology. In fact, we already do. The Carbon War Room focuses on failures in the marketplace and how to remove these barriers in order to scale cost-effective solutions. “To identify these failures, we simply need to open our eyes. It’s Business 101,” says Shah. Fifty percent of the climate challenge can be tackled with existing technology, market, and policy conditions, advocates the War Room.
The process is simple. To identify market barriers The Carbon War Room first takes a top-down global look. For example, the potential for commercial energy efficiency is 1 gigaton of carbon savings through the use of energy efficiency retrofits. The next step is to identify the costs for achieving that 1 gigaton of carbon emission reductions. Once the numbers are generated, the strategy switches to a bottom-up approach. Specifically, what is preventing achievement of these numbers and what is the solution? From this analysis, The Carbon War Room creates a hypothesis for change, and ultimately, direct capital to the sector in order to take new solutions to scale. “This approach allows us to combine knowledge, enthusiasm, energy and finance to unlock the potential of the technologies and businesses of the future,” declares Shah.
This isn’t theory; this is a call to action. The Carbon War Room is mobilizing entrepreneurial and business forces to target market failures. Inherent and fundamental to this strategy, however, are the economic opportunities that transcend carbon reduction. “In the face of great stagnation we need to build, so people are doing something,” says Shah. “This is the greatest wealth-generating opportunity of our generation.”
A visionary devoted to gigaton-scale reduction of carbon emissions, Shah refers to himself as a capitalist who firmly believes that we can “do well by doing good.” He believes it because he’s done it. Shah is a long-time advocate of solar power and founder of SunEdison, a solar services provider that now has more solar energy systems and megawatts under management than any other company. At the start of his career, however, investment in solar required huge up-front installation costs, a model that was effectively killing industry growth. It is this type of market failure that frustrates him. He says, “This is a classic example of a failure to align interests.” Shah identified the fundamental problem—how the energy industry operated was out of alignment with the means of producing solar. It was upon this premise that he launched SunEdison.
For Shah, it was a matter of going back to basics. As he started SunEdison, Shah figured out that the high cost of owning and operating a rooftop solar array posed a real barrier to development. By implementing market mechanisms for the solar industry that already existed in the conventional energy industry, like power purchase agreements which guaranteed a return for investors, he was able to repackage solar as a low risk investment and propel the industry forward.
The SunEdison business model created by Shah stimulated significant growth for the solar industry, but he was just warming up. Shah has since moved on to lead The Carbon War Room, an independent nonprofit, founded by Sir Richard Branson, to harness the power of entrepreneurs to unlock gigaton solutions to climate change. Aptly named, The Carbon War Room is actively coordinating teams of entrepreneurs, business leaders, policy experts, researchers, and thought leaders to focus on market-driven solutions and drive implementation in the war against carbon emissions. “It’s not enough to come up with the idea,” says Shah. It is the job of The Carbon War Room to slog through the details and implement new mechanisms, and it is working.
The Battle for Renewable Jet Fuel
One of the major battles identified by Shah is jet fuel emissions. The Carbon War Room reports that the aviation sector currently accounts for two percent of global greenhouse gas emissions, but the sector will grow to account for over five percent of global emissions by 2020. And, argues Shah, providing viable renewable alternatives to jet fuel is the most permanent way to reduce the sector’s carbon impact. The War Room found that although tests have demonstrated the efficacy of renewable fuels for years, and while renewable fuels’ potential impact on the industry and on emissions is great, use of renewable fuels in aviation is not scaling in proportion to its market potential.
The Carbon War Room identified an information gap—the market barrier—between the aviation sector and renewable fuel manufacturers regarding the quality and sustainability of renewable fuels. This lack of information prevented the aviation sector from identifying opportunities to support promising solutions through investment. To address the information gap, The Carbon War Room partnered with Elsevier to launch RenewableJetFuels.org, a database designed to provide information relating to viable jet fuel opportunities by providing in-depth scrutiny of the renewable jet fuel supply chain companies. The launch of the website on December 4, 2011, provided an assessment of the top five renewable jet fuel supply chain companies in terms of economic viability, scalability and sustainability. “By keeping the site in beta format, producers can continually update and re-submit data. This is then reviewed by experts, enabling RenewableJetFuels.org to be the independent gold standard for investors and airlines in the market,” said Suzanne Hunt, Operations Lead at The Carbon War Room.
Shah’s true vision is to create the market conditions to scale technology by identifying and fleshing out common sense solutions that can cause change to occur. In fact, the more you talk to Shah, the more “V-8” moments you have—moments where you want to smack your hand on your forehead because something he’s said is suddenly so obvious that you wonder why you didn’t see it before. One example he gives is related to shipping. He explains it this way, “If you were moving from Denver to New York and someone told you that one moving truck costs $39.95 a day and the other costs $42.95 a day which one would you choose?” “The $39.95 truck,” I respond. “Even if it costs more in fuel costs to get from Denver to New York,” asks Shah? Oh, another smack to my forehead – I needed the right information. It’s the second battle targeted by The Carbon War Room.
The War on Shipping Inefficiency
The Carbon War Room reports that shipping as a stand-alone nation would be the sixth largest CO2 emitter, with sulfur oxides (SOx), nitrogen oxide (NOx), and related particulates among the worst globally. Surprisingly, the top 16 ships produce as much SOx as the global auto fleet. And notably, just 15 percent of the ocean vessel fleet accounts for 50 percent of emissions. The Carbon War Room reports that just a 30 percent efficiency savings through the uptake of technologies and operational measures at current bunker fuel market prices would equate to a $70 billion saving across the industry.
Remarkably, however, even with proven technologies identified to provide tremendous fuel and emissions savings, coupled with short payback periods, the technologies have not been embraced and systematically introduced. Technologies like satellite weather routing, rudder propeller technology, waste heat recovery technology, and friction reducing hull coatings, present huge economic efficiency and carbon reduction opportunities, yet few fleet owners have begun implementation.
To address this, The Carbon War Room gathered the sector’s key experts and asked them why the shipping companies weren’t addressing efficiency and why their customers weren’t demanding it. The simple answer—and another “V-8” moment—was that no one had asked for fuel economy. The Carbon War Room once again identified an information gap as the market failure. The shipping customer pays the price for fuel, but the information about which ships were more fuel efficient wasn’t available. With appropriate information available to the shipping customers, the incentive to retrofit could then be driven by the market and by the decision of the shipping customers to use the ships that were most efficient.
As a result, The Carbon War Room launched ShippingEfficiency.org for the purpose of increasing information flows around international shipping's energy efficiency. What’s more, it did not take long for the shipping companies to recognize that with informed consumers, they could quickly gain market share through simple energy efficiency upgrades and basic communications. Shah argues, “It is critical to align the economic and environmental interests in order to facilitate crucial capital flows. The transformations we seek will be self-financeable by the industry and will lead to decreased operating expenses. The 2020 fleet could save CO2 emissions by over 0.5 billion tons annually, putting it on a path to reductions of over one billion tons a year by 2050.” In addition to increasing information flows and communication, The Carbon War Room is targeting legal and policy innovation to help accelerate the adoption and enforcement of international regulations on shipping efficiency and permanently embed efficiency as a crucial metric.
The Green Capital Global Challenge
Another battle identified by The Carbon War Room is commercial energy inefficiency. It is well known that deep energy retrofits can achieve significant emission reductions and energy savings. According to Shah, the solar industry is about a $70 billion market annually, but we spend only about $10 billion each year on energy efficiency measures that would reduce the amount of energy we need. So the question is, why would we not be investing in technologies that can be paid for immediately through energy savings?
Again, this is another example of something that makes sound financial sense but it isn’t scaling like it should. An identified barrier limiting investment in beneficial retrofits for solar included high up-front costs and the widespread difficulty in securing capital. Therefore, the solution was to address the barrier of capital flow to the market.
To mobilize an attack in this battle, The Carbon War Room brokered the launch of the PACE Commercial Consortium (PCC) to focus on how to unlock billions of dollars of private investment money for energy efficiency measures in commercial real estate by using a mechanism that already existed—the Property Assessed Clean Energy (PACE) program. The problem with the existing mechanism, however, was that municipalities were required to pay large, up-front payments that they didn’t have. And, there were not adequate mechanisms in place to unlock private investment for the work. So, key to the PCC strategy was the critical collaboration of its members, each providing an important piece of the puzzle in terms of experience in engineering, risk management, program design, administration, and capital.
Through PACE, private capital has the opportunity to provide millions of dollars in stimulus monies to cities in crisis while the cities bear minimal risk. In Miami and Sacramento alone, more than $650 million of private investment is available, and the potential stimulus for other states is also staggering. According to PCC, for every $1 million invested in commercial real estate energy efficiency retrofits there would be on average, $4 million in tax revenues at all levels, $10 million in economic activity, and 60 jobs created.
What you realize talking to Shah is that it doesn’t take but a few “V-8” moments to see a pattern. He tells it is like it is. The Carbon War Room is trying to solve real problems and by doing so, move things forward. They are doing things that make economic sense, and it just so happens that a side benefit is that their work is saving the planet.
Clearly, the other aspect is that Shah’s strategy is not to urge reform through education about the positive benefits. Instead, it is a strategy to demonstrate the successes of what they’ve done and urge businesses and consumers to pay attention and care, while making positive change faster.
To explain, Shah tells a story about the role of cell phones in rural poverty reduction and how advances in information and communication technologies have opened a range of opportunities for rural areas in underdeveloped parts of the world. In his example, he tells of how people would historically walk six or more hours and wait for a bus that may or may not be there. Now buses can text with the arrival time so an all day walk is not wasted. While cell phones provide access to necessary information, however, these rural areas don’t have the means to charge them. “People would pay for more minutes if they could use them,” said Shah. So, to address the charging issue, one company has deployed a 20-watt solar unit for homes in exchange for an incremental extra charge on the cell phone bill. It simply makes market sense. People were paying $3 for diesel to run a generator and that diesel is subsidized by the government, so now the government is also saving. The financer of the solar makes a 40 percent rate of return.
Shah asked what is stopping this model from being rolled out everywhere, and what they found were some transaction and robustness issues, for example, technology to prevent reverse engineering to circumvent payment, but nothing insurmountable or even terribly difficult. These solutions are simple and are the types of solutions that Shah and The Carbon War Room are using to change the world and make our lives better. It’s about economic opportunity with environmental benefits.
Shah is very clear that we need to stop talking and start doing. Countries like China and India have agreed to emissions regulation, not because it’s good for the environment, but because they recognize that this is the largest wealth creation opportunity for this generation. Shah advocates that we have the technology, the passion, and the knowledge. We need to mobilize and facilitate necessary capital flows and to do this we need to wake up and focus on these opportunities. If something is not working, we need to take another look and examine why. Our generation has the opportunity to write a new story; a story that will benefit our society, the global economy and the next generations. What comes next for Shah after The Carbon War Room? I was surprised to hear him say he doesn’t know. However, it does not seem to matter. Whatever comes next for Jigar Shah, we can be certain that it will propel us forward so that we can all "do well by doing good."