October 21, 2007
Corporate Environmental Greening Seen As Exaggerated

An article in Businessweek challenges the claim by many corporations that they are becoming highly environmentally compatible.

Hailed as an environmental pioneer, FedEx (FDX ) says on its Web site that it is "committed to the use of innovations and technologies to minimize greenhouse gases." With 70,000 ground vehicles and 670 planes burning fuel, the world's largest shipper is a huge producer of heat-trapping gases. Back in 2003, FedEx announced that it would soon begin deploying clean-burning hybrid trucks at a rate of 3,000 a year, eventually sparing the atmosphere 250,000 tons of greenhouse gases annually from diesel-engine vehicles. "This program has the potential to replace the company's 30,000 medium-duty trucks over the next 10 years," FedEx announced at the time. The U.S. Environmental Protection Agency awarded the effort a Clean Air Excellence prize in 2004.

Four years later, FedEx has purchased fewer than 100 hybrid trucks, or less than one-third of one percent of its fleet. At $70,000 and up, the hybrids cost at least 75% more than conventional trucks, although fuel savings should pay for the difference over the 10-year lifespan of the vehicles. FedEx, which reported record profits of $2 billion for the fiscal year that ended May 31, decided that breaking even over a decade wasn't the best use of company capital. "We do have a fiduciary responsibility to our shareholders," says environmental director Mitch Jackson. "We can't subsidize the development of this technology for our competitors."

Beware of press releases. You all do not see how many press releases I pass on mentioning because I'm skeptical of the claims. Even for some of those I end up reporting on I have serious doubts. Lots of claims aren't going to hold up with time. Even claims of goals already accomplished are often suspect.

The article is full of anecdotal reports of companies which decided even much shorter payback times for boosted energy efficiency were not worth the money spent. That information has important implications. Once oil production peaks and prices go much higher we have many more opportunities to improve energy efficiency once we absolutely need to.

Renewable energy credits (RECs), touted by corporations as a way to offset the pollution effects of electric power they buy from a local utility, sound like a fraud.

Rather than enjoying his role as an REC pioneer, Schendler felt increasingly anxious. In private, he pushed REC brokers for hard evidence that new wind capacity was being built. Their evasiveness gnawed at him. He asked veterans in the renewable energy field whether his marketing message was legitimate. "They laughed at me," he says.

The trouble stems from the basic economics of RECs. Credits purchased at $2 a megawatt hour, the price Aspen Skiing and many other corporations pay, logically can't have much effect. Wind developers receive about $51 per megawatt hour for the electricity they sell to utilities. They get another $20 in federal tax breaks, and the equivalent of up to $20 more in accelerated depreciation of their capital equipment. Even many wind-power developers that stand to profit from RECs concede that producers making $91 a megawatt hour aren't going to expand production for another $2. "At this price, they're not very meaningful for the developer," says John Calaway, chief development officer for U.S. wind power at Babcock & Brown, an investment bank that funds new wind projects. "It doesn't support building something that wouldn't otherwise be built."

The $2 per supposed megawatt hour really does not cause another megawatt hours of electricity to get generated. It has a small effect on the margin. What is the real effect? Does the $2 shift generation of a tenth of a megawatt hour to wind? Or a hundredth? The effect is real but small. The money effectively just buys a corporation the right to claim (though not honestly) that a given megawatt hour was generated for that corporation in order to prevent a megawatt hour from getting generated by burning fossil fuels.

The fact that RECs have become a big deal with lots more money getting spent on them ought to give one pause about other claims made by corporations about how they are becoming very environmentally friendly. If they are willing to deceive us (and probably themselves to some extent) on this what else are they lying about?

The green movement is still scoring some successes in corporations in part because corporations end up examining more proposed investments for reducing energy use and pollution. So more projects are likely to get approval than would be the case were corporaitons not trying to project a nicer image to the public.

We are going to hear more about corporate "green" projects for another reason: More projects will become cost justifiable on an ROI basis as the cost of fossil fuels goes up and as new technologies lower the costs of substitutes. But keep in mind that corporations will implement these projects based chiefly on expected returns on money invested and secondarily based on perceived value for marketing purposes and lobbying purposes.

Share |      Randall Parker, 2007 October 21 10:44 AM  Energy Policy

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