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De-carbonizing the Economy

September 19, 2022


In a previous article, I discussed why I believe the Inflation Reduction Act of 2022 will spark decades of innovation in the area of climate change.[1] In that article, I cited journalists Coral Davenport (@CoralMDavenport) and Lisa Friedman (@LFFriedman) who reminded us that the dangers of climate change were first brought to light during a Republican administration. They wrote, “In 1969, President Richard Nixon’s adviser Daniel Patrick Moynihan wrote a memo describing a startling future. The increase of carbon dioxide in the atmosphere caused by burning oil, gas and coal, Mr. Moynihan wrote, would dangerously heat the planet, melt the glaciers and cause the seas to rise. ‘Goodbye New York,’ Mr. Moynihan wrote. ‘Goodbye Washington, for that matter.’ Fifty-three years later, Congress is on the cusp of finally responding to what Mr. Moynihan termed ‘the carbon dioxide problem.’”[2]


If you are wondering exactly how the Inflation Reduction Act is addressing the carbon dioxide problem, journalist German Lopez (@germanrlopez) explains, “The bill’s climate provisions are mostly a collection of subsidies for energy that does not emit any carbon, like solar, wind and nuclear power. Without those subsidies, polluting fossil fuels are often still cheaper. The subsidies try to give cleaner energy an edge.”[3] Jesse Jenkins (@JesseJenkins), a professor in Princeton University’s Zero-carbon Energy Systems Research and Optimization Laboratory, told Lopez, “I don’t mean this as an exaggeration: This really changes everything. It is effectively going to shift the financial case away from dirty energy toward clean energy for everyone.”


The Road to De-carbonization is Long and Hard


Although people have used fossil fuels for thousands of years, the world didn’t begin to carbonize substantially until the first Industrial Revolution. Tom Kool, Head of Operations at Oilprice.com, explains, “It wasn’t until the Industrial Revolution in Britain, which began in the middle of the 18th century, that coal and later oil and natural gas became key energy sources for the industry and households in the UK and overseas. … The Industrial Revolution, with the invention of the steam engine, started manufacturing production, machines, and factories which, combined, ushered the society into the modern era. The steam engine made by James Watt became the main driver of the Industrial Revolution. That steam engine was powered with coal.”[4] At the time, Kool notes, “Coal, an abundant source of power drive, replaced water, which was the key source of power before the Industrial Revolution. With coal and steam engines, industrial activity began as steam-powered machines made mass production possible. The Industrial Revolution changed the way people worked and traveled. People traveled on steamships and steam-powered trains, which burned coal to power their boilers. Those became the main means of transportation.”


Two other events also had a tremendous impact on carbonizing the world. First, was the creation of electrical power grids — spurred by Thomas Edison’s invention of the first practical light bulb in 1879 and the construction of the first commercial alternating current (AC) power system in the United States in 1886. Once the consuming public had a taste of what electricity could do, they couldn’t get enough of it — and that meant building power plants to supply all that energy. The second event was the invention of the horseless carriage. Kool insists the invention of the automobile changed “the demand for petroleum products around the world forever. … The first automobile running on a refined product of crude oil — gasoline — was invented by German engineer Carl Benz in 1885. In the United States, Henry Ford launched the Model T in 1908 — a mass market affordable automobile which drove up demand for gasoline. … By the middle of the 20th century, oil became the most used energy source in the United States thanks to gasoline demand.”


It took decades for global economy to become addicted to fossil fuels and breaking that addiction won’t be easy. Journalist Robert Samuelson explains, “Anyone who tells you that dealing with climate change is simply a matter of sweeping away the obstructionism of oil companies is living in a dream world. The real obstacle is us — our vast dependence on fossil fuels and the difficulty of extricating ourselves without crippling the world economy.”[5] Several years ago, the energy research firm Wood Mackenzie published a study that concluded eliminating fossil fuels from the U.S. power sector would cost $4.7 trillion and pose massive economic and social challenges. Journalist Nichola Groom (@nicholagroom) notes, “Wood Mackenzie’s report focuses solely on what it would cost to green the U.S. power sector, a top contributor to greenhouse gas emissions — but does not include costs for other sectors like transport, agriculture or manufacturing.”[6]


Does that mean we should throw up our arms in despair and do nothing. Of course not. It means the government and businesses must craft and implement realistic plans to de-carbonize. They must adopt strategies that make substantial progress but also reflect economic realities. One of those realities is that the world is going to continue to extract and use fossil fuels as the transition to more sustainable energy sources takes place. The Inflation Reduction Act admits this is the case. Lopez explains, “The bill does include a compromise: It requires more leasing of federal lands and waters for oil and gas projects. Senator Joe Manchin, the most conservative Democrat in the Senate, demanded this provision. But experts say that it will have only a modest impact in terms of greenhouse gas emissions. Overall, the bill will subtract at least 24 tons of carbon emissions for each ton of emissions that the oil and gas provision adds, according to Energy Innovation, a think tank.”


Businesses Can Help


Boston Consulting Group (BCG) analysts David Young and Simon Beck insist, “Rarely in business history have CEOs had more significant opportunities to capture advantages, reset industries, and anchor their legacies than at this moment in the global race to sustainability.”[7] They add, “These opportunities span industries and regions, and they extend beyond current net-zero ambitions and environmental, social, and governance (ESG) targets. CEOs should formulate strategies that create and capture long-term competitive advantage from the transition to net zero and sustainability.” Supply chain journalist Bob Trebilcock observes there has been a “broadening of supply chain’s focus from efficiency and sufficiency to one of efficiency, sufficiency and sustainability. … Supply chain managers were now tasked with balancing cost and on-time delivery with sustainable operations.”[8] While some critics argue this is a losing strategy, Jana Gerber (@janamgerber), the North America Microgrid President at Schneider Electric, told Trebilcock she believes sustainability and de-carbonization strategies are essential for a company’s survival. She stated, “Without getting into tree hugging, the question is what are we doing to make sure that we have companies that can operate over the long term? … As your industry gets transformed by the energy transition, will you go the way of the dodo, or will you be a phoenix?”


Implementing the right strategy requires analyzing a number of variables, including energy usage, return on investment, energy sources, energy reliability, carbon offsets, etc. As I noted in my previous article, at Enterra Solutions®, we developed our Enterra Global Insights and Decision Superiority System™ to help clients become more resilient and competitive by dynamically modeling, simulating and determining the optimal scenario that is necessary to maximize a corporation’s strategy at the speed of the market with an extremely high degree of accuracy to mitigate risk or capitalize upon opportunity. The result of all these simulations is that a company can better understand, anticipate and navigate the future business environment — including the best de-carbonization strategy to implement.


Concluding Thoughts


Climate change specialist Timmons Roberts (@TimmonsRoberts) bluntly states, “Fossil fuels have to go. … We’ve known it for three decades.”[9] He adds, “Burning billions of tons of coal, oil, and natural gas is creating a thickening blanket over the Earth, holding in its heat and disrupting all kinds of systems, from oceans temperatures and chemistry to storm patterns, creating heat waves, hurricanes, droughts, and floods.” We’re seeing signs of climate change everywhere and it’s past time we do something about it. The Inflation Reduction Act is a good start. Companies and individuals can do more to help as well. Unfortunately, de-carbonizing is a global challenge not merely a national problem. As Samuelson noted years ago, “Virtually all the energy increase is projected to come from developing countries for factories, offices, homes, air conditioners and heaters. India and China alone account for half the increase in energy use by 2040.” Innovations spurred by the Inflation Reduction Act could help developing countries break that trend and put us all on a course to a cleaner future.


[1] Stephen DeAngelis, “Innovation and the Inflation Reduction Act,” Enterra Insights, 9 August 2022.
[2] Coral Davenport and Lisa Friedman, “Five Decades in the Making: Why It Took Congress So Long to Act on Climate,” The New York Times, 7 August 2022.
[3] German Lopez, “Ditching Fossil Fuels,” The New York Times, 12 August 2022.
[4] Tom Kool, “The Complete History Of Fossil Fuels,” OilPrice.com, 25 March 2020.
[5] Robert Samuelson, “The difficulty of weaning the U.S. economy off of fossil fuels,” Las Vegas Review-Journal, 5 March 2018.
[6] Nichola Groom, “Weaning U.S. power sector off fossil fuels would cost $4.7 trillion: study,” Reuters, 27 June 2019.
[7] David Young and Simon Beck, “The Strategic Race to Sustainability,” Boston Consulting Group, 12 July 2022.
[8] Bob Trebilcock, “The long and winding road to decarbonization,” Supply Chain Management Review, 3 September 2022.
[9] Timmons Roberts, “Climate reality requires starting at home: Weaning from fossil fuels,” The Brookings Institution, 11 October 2018.

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