Homestead mailing list

[Gene GeRue <genegerue AT ruralize.com>]

Here is current news pertinent to our discussion:

THE NEW ECO-CAPITALISM
When Being Green Puts You in the Black

By Daniel C. Esty
Sunday, March 4, 2007; Page B01

Are America's capitalist titans really going green?

This week's announcement that two of the country's largest private  
equity firms, Kohlberg Kravis Roberts and Texas Pacific Group, will  
purchase the Dallas-based utility TXU made headlines, and not just  
because the $45 billion deal represents the largest private equity  
transaction in history. The even bigger news was the environmental  
dimension of the takeover proposal. It calls for scaling back  
construction of new coal-fired power plants, ramping up commitments  
to wind and solar power, supporting mandatory controls on greenhouse  
gas emissions and promoting energy efficiency.

One can overdo the hyperbole here, of course. Henry Kravis --  
allegedly the model for the 1980s bestseller "Barbarians at the Gate"  
-- isn't just a Green Knight riding into the Lone Star State to save  
it from a polluted future. He's a smart businessman who wants to make  
money. And that is just the point.

This deal shows that we are in the midst of a revolution.  
Environmental progress no longer depends on hundreds of bureaucrats  
at the Environmental Protection Agency mandating what piece of  
pollution-control equipment will be on each smokestack. Government  
must continue to set standards. But the burden of innovation and  
technology development will shift to the private sector.

Moving from "command and control" regulations to a market approach to  
environmental protection means that there will be real costs for  
pollution -- including a price to be paid for greenhouse-gas  
emissions -- for every business. But these costs sharpen the economic  
incentives for pollution control research and development, and create  
big opportunities for companies that come up with solutions for  
society's environmental problems.

At the recent World Economic Forum in Davos, Switzerland, CEOs fell  
over one another stepping up to the issue of climate change.  
Companies large and small are redoubling their environmental efforts  
in the face of Wal-Mart's demands that its suppliers reduce waste and  
improve energy efficiency. Billions of dollars of venture capital are  
flowing into alternative energy and pollution control technology.  
Leading companies -- call them "WaveRiders" -- have begun to fold  
environmental thinking into their corporate strategies.

They recognize that we face a carbon-constrained future. While the  
Bush administration remains opposed to the emissions limits of the  
Kyoto Protocol, the European Union has imposed greenhouse-gas- 
reduction obligations on its industries and set up a carbon market to  
facilitate cost-effective implementation of these requirements.  
Dozens of American states have likewise taken action in response to  
the threat of climate change. In fact, five Western states, following  
the lead of California Gov. Arnold Schwarzenegger, announced plans  
last week to set up their own system for trading carbon emissions.  
And more than 400 U.S. mayors have committed their cities to  
emissions-reduction targets.

The next U.S. president is almost certain to bring the nation back  
into climate-change negotiations and commit to a "beyond Kyoto" set  
of greenhouse gas reductions.

With the prospect that carbon emissions will soon bear a price -- and  
perhaps an escalating one -- the decision by the new owners of TXU to  
steer away from a focus on carbon-intensive coal-based power makes  
good business sense. In fact, leading-edge companies nationwide are  
factoring in carbon charges and thus higher prices for burning fossil  
fuels into their business planning models. This new approach has  
several important implications. By making companies pay for every  
increment of pollution, society puts an economic premium on vigorous  
environmental effort, and forces executives to make pollution control  
and management of natural resources a core part of their strategy.

Companies that fail to grasp this point put themselves at competitive  
risk. Ford Motor Co. teeters on the edge of bankruptcy because it did  
not spot the public's emerging desire for more fuel-efficient and  
less-polluting vehicles. At the same time, Toyota reported record  
profits last year because it put these issues at the center of its  
design strategy, which includes hybrid engines, "lightweighting" of  
its vehicles through the use of carbon fiber and other advanced  
materials, and "smart systems" that use computer power to improve  
efficiency and performance.

The environmental imperative on business arises not just from tighter  
regulation, but also from the reality of higher energy costs,  
shortages of natural resources and pressure from environmentally  
oriented stakeholders, such as those who shaped the TXU deal. With  
energy costs rising, an expanded focus on conservation and efficiency  
will pay off in many areas. From high-efficiency LED lighting to  
smart appliances and green buildings, opportunities to link  
information-age technology to environmental challenges abound.

A growing number of companies are finding their business plans  
pinched by limits imposed by nature. For example, Coca-Cola's ability  
to sell soft drinks depends on access to water, something that cannot  
be taken for granted in markets such as India. Today, many companies  
are operating in communities that care deeply about the environment.  
And employees increasingly want to work for companies that have good  
environmental records in line with their values. Top corporate  
leaders recognize that environmental issues represent more than a set  
of regulations to follow or costs to bear. There are enormous profit  
opportunities for companies that respond to climate change, water  
shortages, air pollution and other problems. Jeffrey Immelt, chairman  
and chief executive of General Electric Co., for example, is selling  
off his plastics business to focus on high-growth, high-margin  
environmental goods and services, such as more efficient jet engines,  
wind power, solar energy and water purification.

This new approach to environmental progress has several important  
implications. By making companies pay for every increment of  
pollution, society puts a premium on vigorous environmental effort  
and forces executives to make pollution control and natural resource  
management a core part of their strategy. So KKR and TPG have most  
certainly have not gone soft. The masters of the universe have not  
given in to greenmail in a fit of political correctness. To the  
contrary, they are super-sophisticated business people who have  
learned that success in the marketplace now depends on getting  
corporate environmental strategy right.

daniel.esty AT yale.edu

Daniel C. Esty is the Hillhouse Professor at Yale University and the  
co-author, with Andrew Winston, of "Green to Gold: How Smart  
Companies Use Environmental Strategy to Innovate, Create Value, and  
Build Competitive Advantage" (Yale University Press).

http://www.washingtonpost.com/wp-dyn/content/article/2007/03/02/ 
AR2007030202044.html