Tom Konrad CFA
The Richard Branson-backed nonprofit, the Carbon War Room is a group that thinks big in the battle against catastrophic climate change. They’re only interested in attacking problems with the potential to reduce carbon emissions on the gigaton scale, that is reducing emissions by a trillion tons a year.
No one nonprofit or even one multinational company can deploy the necessary capital to seize a fraction of the opportunities on this scale. An annual gigaton of carbon emission reductions requires between $300 billion (Energy Efficiency) and $2 trillion (Solar PV) in up-front investment, according to Jigar Shah, the Carbon War Room’s CEO and a solar business model innovator in his own right.
Instead, the Carbon War Room looks for overlooked opportunities to effect market transformation which will allow green entrepreneurs to thrive and rapidly scale profitable business models that also have the effect of reducing carbon emissions at the gigaton scale. As these new opportunities grow and prove themselves, large companies and capital providers can step in to take advantage of the new profit opportunities, displacing less forward thinking incumbents as they go.
One such example of the Carbon War Room’s efforts at shaking up old industries is their ShippingEfficiency.org initiative. This site gives businesses shipping goods an idea of how efficient various ships are, so they can make their decision of which ship to use based not only on price, but on emissions. Even though the ratings currently available are not perfect, with big shippers like WalMart (WMT) taking an increasing interest in the environmental impact of their supply chains, the greater transparency can only help the shipping industry to clean up its act.
The Carbon War Room chose to work on catalyzing improvements in shipping in part because the sector had so far received very little attention, there is a suite of mature technologies for improving ships’ efficiency with quick paybacks, and those solutions can potentially be deployed quickly to reduce carbon on a gigaton scale.
The Investing Angle
The Carbon War Room’s criteria to choosing projects also make a lot of sense for a stock market investor trying to pick stocks. Looking at sectors that other investors are ignoring is a good way to find undervalued stocks. Focusing on technologies that are deployable today is a good way to avoid stocks about to head into the Valley of Death. And quickly deployable technologies mean there is a large potential for profit growth.
I just returned from the Carbon War Room’s Creating Climate Wealth conference in DC. It was a working conference, where the attendees collaborate across disciplines to find new ways to catalyze profitable carbon reduction, and I’ve come back with a few ideas about how to create a little carbon wealth in the stock market. I plan to share them with readers in future articles.
But first, a note about what to avoid.
I sat down for an interview with Jigar Shah on the second day of the conference. One thing he told me should be taken to heart by all investors hoping to make a difference on climate change: “Radical incrementalism will fail.”
What does he mean by the oxymoronic phrase “radical incrementalism”? Doing the same thing we’ve been doing all along, but in a slightly more efficient manner. This simply does not produce the climate gains we need.
In transport, the highly flawed CAFE standards are the best tool we have to increase vehicle efficiency, but more efficient vehicles (even if we ignore Jevons’ Paradox) may reduce emissions per mile, but they don’t get us anywhere as long as miles driven are rising. The greatest potential lies in alternative transport: bike sharing, car sharing, and transit.
In agriculture, it has been extremely difficult to make even the smallest changes in how monoculture farms are run. The greatest potential lies in containerized farming, which can produce fresh vegetables on the roof of the very same supermarket in which they will be sold, while lowering cost, reducing food-miles, and increasing freshness.
Trying to fit new technologies into old ways of doing things seldom works as well as we would hope. The strongest force holding back a new, low carbon economy is our attachment to legacy business processes, not any lack of technology. By catalyzing changes in business processes, low carbon technologies can be unleashed, creating wealth for the companies who embrace them while reducing greenhouse gas emissions.
You can’t create great climate wealth without breaking a few paradigms.