Ceres Q&A With Nancy Pfund: 'The progress we are making is undeniable'

  • August 18, 2016
Ceres is launching a new Q&A series as part of its Clean Trillion campaign aimed at elevating clean energy investments globally by an additional $1 trillion a year in order to minimize damaging climate change impacts. The series will focus on investment thought leaders who are paving the way in this fast-growing space. Today’s interview is with Nancy Pfund, founder and managing partner of DBL Partners, a venture capital firm based in San Francisco. Ceres: DBL Partners has an ambitious goal of investing in companies that deliver top-tier returns while also yielding environmental and social benefits. From a clean tech perspective – with Tesla, Solar City and Off-Grid Electric among your investments – are you feeling bullish today about achieving these dual objectives and do they require more patience than is typical for a VC firm? Nancy Pfund: DBL’s mission of investing for both financial and social returns is getting more relevant every day. Investors from pension funds to endowments to family offices, foundations and strategics increasingly have sustainability front and center in terms of their areas of focus. DBL has been a huge beneficiary of this trend, and its investments are helping to show the world that now is the time to create the 21st Century’s iconic corporations designed with 21st century needs like climate change in mind. In our asset class, venture capital, patience is required no matter what the sector. Taking on incumbents doesn’t happen smoothly or overnight. While clean energy investing has its share of volatility – the ‘solar coaster’ as one example – the progress we are making is undeniable as we move toward higher and higher penetration of renewables, EVs, efficient buildings and, now, energy storage. While the state by state regulatory structure in the United States is an expensive attribute with which companies in this space have to contend, the reward is that when progress is made, the public pays attention and the stories of these pioneers become embedded in a larger swath of our social fabric than just a new app company can usually achieve. This makes for outsized return potential, both in terms of investors and society as a whole. C: You have predicted a transformation in the energy world in the next decade that will change entire industries, including electric power and transportation. Why are you confident about this transformation moving forward? NP: The energy transformation is driven both by attractive cost/performance curves and growing consumer awareness and demand. It is this combination that makes it so unstoppable. No longer do consumers need to sacrifice performance for green credentials, and increasingly they not only don’t need to pay more, they may pay less. Going forward, the opportunity will grow to store your power from your solar panels to use at night or as backup, charge your car according to the cheapest rates with the push of a button, and enjoy aesthetic appeal in design from your roof to your windows to your garage: all of this taps into what consumers want today. Just as we have enjoyed radical changes in how we take photos, send emails or texts, make phone calls, listen to music, and share stories, photos and information with one another of the past decade, we are now poised to enjoy these new benefits in our energy lives. Like Rumpelstilskin’s 100 year old slumber, it’s time to wake up! Along the way, we can re-invigorate quality job creation and manufacturing, creating jobs that are accessible to a wide variety of Americans. C: I’m especially intrigued by DBL Partner’s recent $10.5 million investment in Off-Grid Electric, an off-grid solar company that is entirely focused on Africa. This is DBL’s first investment in Africa. Why Africa and why now, and how did lessons learned from your domestic clean energy investments inform this investment? NP: Our investment in Off-Grid Electric (OGE) is a logical progression of both DBL’s mission and our investment focus. There are currently over 1.4 billion people who live without electricity, over 600 million are in sub-Saharan Africa. Without fixing this electricity gap, building a middle class and improving quality of life will remain off limits to regions of the world that are slated for some of the highest rates of population growth over the next generation. In 2016, we simply can’t sit by and let this happen – we need collective action and we need to extend the benefits of an entrepreneurial approach to regions that are now ready to launch. At the same time, in bringing electricity to millions of people, we don’t want to, and don’t have to repeat some of our 20th century models that no longer work. Costs of solar and storage and energy efficiency devices are now in reach for many Africans, and can replace dirty and unreliable fossil based solutions. The widespread use of mobile phones in this area of the world also allows for frictionless payment models, another leapfrog effect that allows Africa to define its own future and augment its entrepreneurial profile. These are the reasons to use the lessons we have learned in U.S. clean energy markets and apply them to a new market like Africa: the return potential is significant and the opportunity to shape a more prosperous and healthy future makes for one of the highest impact endeavors of our age. C: Which other emerging economies are you looking at closely as strong opportunities for clean energy investment and why? NP: DBL is a small firm, so we don’t yet have the bandwidth to invest all over the world. We are working carefully on Off-Grid Electric and learning the ropes. If, or when, we are successful with this investment, we will build more capacity in our future investment map for other emerging markets. Of course, many of our companies reach these markets, so we are deepening our understanding by working with them even though they are headquartered in the United States. For now, we are moving into other verticals, like agriculture and food/nutrition, to address climate issues in a more diverse manner, while using the geographic diversification of OGE to build our global approach for the future. C: Seven months ago, 196 countries forged a historic global climate agreement that calls for dramatic reductions in greenhouse gas emissions to stay below the two degree Celsius threshold. Has this agreement changed the playing field materially and if so, how? NP: The Paris agreement has played a major role in shaping the way we think and talk about our future. No longer is it a question of should we do something to combat climate change. Now the assumption is that we all need to work together to make this happen. Another big change in Paris was that the role of innovation took center stage. The Paris talks incorporated real world technologies and business solutions that can play a role today rather than just setting far off goals that may or may not be achieved. The recognition of the role of innovation to get ourselves out of the climate dilemma we have created was extremely important. Investors are taking notice and a new crop of innovations and startups are being funded and will continue to be funded in the future. C: Ceres has a campaign called the Clean Trillion, which seeks to boost global clean energy investment by an additional $1 trillion a year to limit global temperature rise to 2 degrees or less. Investment levels today are tracking at $300-$350 billion a year. What must change to accelerate investments in this space at the pace needed to avoid the worst impacts of global climate change? NP: In order to fuel more investment to achieve Clean Trillion goals, we need more successes, and more visibility for these successes. We need to celebrate pioneers like Tesla, SunPower, SolarCity, First Solar as well as the new entrants that are sprouting up in all sectors and geographic regions. These are the kinds of companies our young people want to work for, and we need to help raise their visibility and help them out because they are dramatically underfunded compared to century-old incumbents. In reality, nothing attracts investors to a sector more than seeing that others have been able to make good returns. We also need to take more risk in funding the investment managers who want to do this work. Billionaire business leaders play a major role in promoting more investment, of course, but often the next big thing will be found by someone you’ve never heard of and who needs your support. Big philanthropy and business players can help support these smaller players – this is central to how innovation occurs in all sectors. In order to fuel more successes, corporations also need to step up and initiate more pilots and purchases of products and services offered by new entrants, as these are critical moves that allow young companies to “cross the chasm” and attract follow on investments. Temptations to do things in house or allow a “not invented here” philosophy to impinge on working with startups must be consciously managed by corporate partners if they, and all of us, are to be successful. Read the post at Forbes Sustainable Capitalism Blog

The SEC Must Improve Disclosure of Material and Emerging Sustainability Risks

The U.S. Securities and Exchange Commission is starting to take sustainability risks—and corporate reporting of those risks—seriously. The concept is straightforward: climate change, water scarcity, human and workers’ rights, and the ongoing global transition to a low carbon economy pose significant risks and opportunities to companies and the investors who own them. Under long-standing SEC rules, companies must disclose these risks, if material, in their financial filings. The SEC recently and unexpectedly opened the door to improving sustainability disclosure during a major speech by Chair Mary Jo White, in which she stated, “We are taking a more focused look at such disclosures, particularly related to climate change, in our annual filings reviews...”, adding that, “the issue has our attention.” In July, the SEC included a panel discussion at an Investor Advisory Committee meeting focused on options for progress on disclosure, and early this year, the agency issued a request for public comments on how to move forward. Investors responded to that request in a big way. Forty-five investors representing $1.1 trillion in assets under management backed a letter organized by Ceres that called on the SEC to improve sustainability disclosure, arguing that action is needed to provide “a level playing field and give all investors comparable and useful material ESG information.” Thirty-five members of Ceres’ Investor Network on Climate Risk (INCR) sent their own letters, making it clear that the SEC leadership and staff must start wrestling with these issues to give investors the information they need. They highlighted several key issues for the SEC to consider including: Reporting on corporate boards. The California Public Employees’ Retirement System’s (CalPERS) wrote: “[We] have highlighted the need for boards to be independent, competent, and diverse. We regard this as essential to ensuring effective risk oversight, particularly on emerging issues like climate change risk, cyber security, and human capital management.” Portfolio level risks. Domini Social Investment wrote: “So-called ‘externalities’ - costs that corporations impose on third parties...are often carried by a fiduciary's clients, by other companies, or by the economy, but are not explicitly captured by current rules, [unless a company believes they are material].  Prudent investors wish to understand and mitigate these risks before they become systemic, or before they become reputational or legal risks to the issuer that created them.” Fairer, safer and more equitable workplaces. The AFL-CIO Office of Investment asked the SEC to require disclosure of human capital management metrics, focusing on its significant impact on corporate performance. “Over the last century physical assets played a far greater role in creating value and driving performance and thus received substantial attention in financial reporting,” said the letter. “Today, however, intangible assets drive a much greater share of value creation and accordingly require far greater attention in mandatory corporate disclosures.” Industry-based key performance indicators (KPIs). State Street Global Advisors wrote: “Given our need as investors for information on companies’ ESG practices, we request that the SEC consider requiring listed companies to enhance their ESG-related disclosures.  We encourage the SEC to consider developing rules that would help companies: Identify appropriate KPIs by industry and sub-sectors Establish a common standard to measure the KPI Introduce standardized reporting of KPIs on an annual basis” The SEC has many tools at its disposal for making progress on these issues, including boosting the number of staff comment letters to companies and providing clearer guidance on sustainability disclosure. It is time for the agency to use these tools and take stronger action to protect investors and all of us from the financial risks of climate change and other sustainability concerns. It is equally important that Congress supports the SEC’s mission of protecting investors, maintaining fair, orderly, and efficient markets. Yet just last month the U.S. House of Representatives passed a spending bill that included an amendment that would bar the SECfrom enforcing its 2010 climate risk disclosure guidance. This is common sense SEC guidance on reporting climate risk information that investors called for in their letters to the SEC. We’ll be working over the coming months to ensure that Congress understands that this amendment serves no one and harms investors.

Why Passing Climate Legislation Is Good for California’s Water

As every Californian knows by now, our state is in the fifth year of a drought, and this persistent imbalance of supply and demand in our water supply is likely the new norm. The good news is that many of our state leaders have woken up to this fact, and in recent years have been clearing some of the logjams around smart water management. The state adopted a historic groundwater bill in 2014 to help ensure our reserves don’t run dry, and the legislature and voters passed a $7.5 billion water bond to help fund the infrastructure to make our state more resilient. But arguably the most important water policy up for a vote this year is currently facing an uphill battle in Sacramento, and we all need to rally to ensure that it passes. That policy is the California Global Warming Solutions Act – Senate Bill 32 – which aims to extend the state’s impressive progress in curbing global warming pollution while building a stronger economy. Surprised? What does SB 32 have to do with water? Well, a lot. The scientific evidence is conclusive – drought (and other climatic extremes) is exacerbated by climate change. Research released last year in a report on the economic risks of climate change called “Risky Business” concludes that California is on a path to “changes in the timing, amount and type of precipitation (that) will put the reliability of the state’s water supply at risk.” The “Risky Business” report also found that “climate-driven changes in water availability, quality and timing could have a significant impact on California’s agricultural economy.” In line with this analysis, a key finding of a more recent Select Committee on Water Consumption and Alternative Sources reportis that “climate change trends suggest that all droughts in the future will be hot ones, increasing their severity and the need for water sources not reliant on snowpack.” The “business as usual” scenario outlined in the “Risky Business” research also includes extreme sea-level rise, which will flood the water supply and delivery infrastructure. It identifies 28 wastewater treatment sites in California that could be inundated by seawater under current projections, including one of the world’s largest facilities, Hyperion, which treats up to 450 million gallons per day for the City of Los Angeles. Sea-level rise could also inundate groundwater supplies with saline water, making them unusable without treatment. Restoring these supplies and relocating wastewater plants would come with big dollar signs for cities and taxpayers. If SB 32 fails and our progress on climate mitigation does not continue past 2020, California could face a future that more closely resembles the disaster film “The Day After Tomorrow” than the idyllic “Sunset Boulevard.” Many California communities are already without water and looking to relocate water infrastructure projects. According to the Community Water Center, 296 small public water systems have been unable to provide adequate drinking supplies in recent years. Going without tap water and showers is a harsh reality for the residents affected. Agricultural communities are obviously feeling the impact, too. Acreage under cultivation is down by nearly 1 million acres since the drought began and farmers who are still working their fields are often paying substantially more for their water. Yet some lawmakers are not making the connection between climate legislation and the state’s long-term water security. In a recent meeting here, one state legislator noted that he was leaning against Senate Bill 32 primarily because he felt his district wasn’t getting a big enough piece of the funding pot for clean energy programs created under the state’s current climate law. What he wasn’t thinking about is the vast farm acreage being fallowed in his district due to climate change – an impact that is surely larger. Our state leaders need to look at the whole picture. And that whole picture includes a robust economy. SB 32 would continue current programs to limit global warming pollution that have helped California build an advanced energy economy while adding 500,000 jobs. We need SB 32 to provide certainty that this progress and economic growth will continue. California cannot solve climate change on its own, but its forward-thinking policies set an example that other states and countries can emulate. If SB 32 fails, there may be a domino effect globally that will jeopardize the planet and the economy alike. We cannot let that happen. All of us who work on water issues and are concerned about the drought and water scarcity must come together on this critical piece of legislation and ensure a brighter future for California and the world. Read the post at Water Deeply

Wall-Street Warriors Becoming Water Aware

Devastating droughts in California, Brazil, South Africa and elsewhere, coupled with global trends of groundwater depletion and water quality degradation are motivating investors to become more water aware. Drought in many regions is causing commodity prices for key ingredients to spike or is translating into higher energy costs, with both economic and societal ramifications. South Africa’s extreme heat and minimal rainfall, for example, are crushing crop production, forcing millions to go hungry and dropping the share value of major food producers. Illovo Sugar recently reported a 36.5 percent drop in full-year profit due to the drought. Mining companies BHP Billiton and Valle recently faced over $5 billion in regulatory fines due to a massive tailings pond spill in Brazil that devastated entire communities. Water-related risks like these are beginning to catch investors’ attention on a hotter, more crowded planet. With support from The Rockefeller Foundation, Ceres leverages the power of institutional investors, who own or lend to many of the world’s largest companies, to play a more decisive role in protecting the Earth’s freshwater resources. Education is a critical component of this work as many investors are just beginning to understand escalating water risks and their far-reaching impacts on financial returns and ecosystems alike. Recently, Ceres surveyed dozens of global pension funds and fund managers on their strategies for integrating water analysis into investment decision-making, and found that their current practices fell far short in light of growing water risks. Ceres found it rare for investors to have more than a few elements of the following leading practices: Institutionalizing water risk analysis into daily investment practices (including in investment beliefs and policies, proxy voting guidelines and RFPs) and ensuring that upper management understands the importance of water risk integration; Viewing integration of water risks as an opportunity for deepening understanding of investment risks, developing new investment products and building stronger client relationships; Understanding water risk exposure by asset class and developing a proactive engagement strategy with companies or entities with high water risks; Conducting portfolio water foot-print analysis, with geographic and sector specific lenses; Understanding specific sector water issues, especially in high-risk industries such as mining, energy and water utilities, oil and gas production, food, beverage and textile companies; Leveraging the scientific and academic communities to better inform water security analysis and to develop a network of regional experts to gain context for water-related reputational and social license to operate risks; In buy/sell decision-making, capturing elements of water dependency, security and management risk mitigation response. To accelerate adoption of these practices, investors need to hear from their clients—from large pension funds, endowments, foundations and individuals—that water risk integration is important. Unlike carbon risks, material water impacts can wipe out entire investments or balance sheets in the blink of an eye. Newmont and Coca-Cola both had to walk away from major projects recently due to community concerns about water impacts. Companies face other water risks, as well, whether from multi-billion dollar wastewater tailings pond spills into drinking water supplies or massive fertilizer-fed algal blooms in Great Lakes in the U.S. Midwest. Both water quantity and quality challenges are of central concern to Ceres’ Investor Water Hub, a working group comprised of dozens of investors in Ceres’ Investor Network on Climate Risk (INCR). “Hub” members meet every month to share best practices and other innovations for elevating water issues in their decision-making. The Ceres-led group, which receives key strategic advise from the University of California Regents, Norwegian pension fund Norges Bank Investment Management, Breckinridge Capital, Impax Asset Management, Sustainable Insight Capital Management and Dutch pension fund PGGM and other advisory board members, is launching an Investor Water “Toolkit” in early 2017. The toolkit will be a “one-stop shop” online portal of resources, best practices and ideas to help investor peers make sound water analysis part of regular mainstream financial analysis. Ceres, The Rockefeller Foundation and Hub members hope the Toolkit will also drive systemic change, by expressing investor water research needs to key financial market stakeholders such as theSustainability Accounting Standards Board (SASB), credit rating agencies, industry associations, and research and data providers to improve their investor water analytics. Once water analysis becomes more systematically embedded into the financial markets, investors will play a stronger role to preserve not only their own capital, but threatened freshwater capital, too. Read the post at The Rockefeller Foundation

Complications of ‘New’ Deep Groundwater

Californians living through a fifth year of historic drought received what seemed like a bit of good news last month: Researchers at Stanford found significantly larger-than-expected groundwater supplies 1,000 to 3,500ft (300 to 1,000m) below the state’s surface, in a first ever assessment of water supplies in California’s deep underground aquifers. Updated estimates of our precious groundwater supplies are much-needed progress, as some estimates date back to 1989, but it’s critically important to approach these findings with a 21st-century mindset. Finding massive water reserves deep below California will not return us to the days when we could heedlessly water lawns throughout a scorching summer. The fact of the matter is, it may never make sense to tap these “reserves.” Rather than dig expensive wells to draw water to the surface, we need to focus on the highly effective and extremely cost-efficient solutions already within reach to make the best use of the water we have. Between the misleading headlines about the newly found water supplies (for instance, “Drought-Hit California Has a Bonanza of Water – Underground,” reports Time) and recent actions by the state, the average Californian could get the sense that everything is OK in our water-stressed state. This spring, the State Water Resources Control Board and Governor Jerry Brown sent mixed messages about the state of our water crisis by eliminating mandatory water-conservation targets for local water districts, while at the same time making some of the emergency water conservation measures enacted last year permanent. Since the mandatory water-conservation requirements were eliminated, many water utilities across the state have taken steps that ignore the long-term water shortages we face: Nine of the top 10 utilities in the state have set their water-conservation goals to zero! To be sure, it is good news that there may be significantly more water underneath California. Using data from the oil and gas industry to measure shallow and deep groundwater sources in eight Central Valley counties, the study found that usable groundwater in the Central Valley may be nearly three times the current estimates. And adding in the moderately salty groundwater deepest in the earth quadruples our current estimates. But we need to ask ourselves: Will this ever be a truly sustainable water supply? First and foremost, the cost of pumping the water would be prohibitively expensive and energy-intensive. In 2014, with the drought searing the state, National Geographic profiled a Central Valley well-drilling operation that dug ever deeper to reach its customers’ groundwater supplies. A 1,000ft-deep well cost $300,000 to $350,000 to drill, test and fit with pumps. Drilling 2,000ft (600m) farther down would cost an additional $450,000, bringing the total cost for a well that could reach most of the lowest groundwater reserves to $750,000 or more per well. And that doesn’t even include the energy costs. If that expense doesn’t make you think twice, consider the additional cost to treat this salty groundwater. According to Circle of Blue, “even the moderately salty water can be turned fresh” once it’s pumped to the surface, at a cost of “one-half to two-thirds the energy as removing the salt from seawater.” As Juliet Christian-Smith of the Union of Concerned Scientists notes in the LA Times, even with lesser desalination costs, farmers would still pay exponentially more for that water than the $31 to $174 per acre-foot of water they paid this year. Beyond the cost considerations, it’s important to manage the state’s groundwater and surface water as one system. Rushing in to withdraw these new resources would lead to even more drastic land subsidence than we’re already seeing, such as in some parts of the San Joaquin Valley that are dropping as much as 2in (5cm) per month and could potentially impact stream flow. Water conservation and efficiency are our best tools to save water immediately, starting with fixing leaks. At the Silicon Valley Leadership Group’s 2016 Summit last month, Tim Anderson, from the Sonoma County Water Agency, explained how leak detection can save huge amounts of water. One of the agency’s small municipal customers uncovered a leak that released approximately 100,000 gallons (380,000 liters) of water per day – nearly one-third of the customer’s total supply production! Senate bill 555, signed by the governor last fall, requires all urban water suppliers to conduct surveys of their water losses and publicly report that data, with the goal of finding and eliminating water leaks like that in Sonoma County. Water recycling is another method that makes better use of our scarce water resources, and one that the state should require water agencies to pursue. Senate bill 163, which stalled in the state Senate a few weeks ago, would have declared discharging treated wastewater to coastal waters a “waste and unreasonable use” of water resources, and thus required water agencies to recycle their wastewater. While water recycling has energy costs, a 2013 reportfrom the Pacific Institute found the costs were significantly lower than either desalinating seawater or transporting water from Northern to Southern California. Similarly, we should capture stormwater both for use and to recharge groundwater basins. The city of Los Angeles is looking to transform its 2,000 acres (800 hectares) of alleyways to capture stormwater, for example. In many ways, California’s leaders understand the scale of the water crisis we face and are acting to address it – but now we need them to convey the urgency of the crisis consistently to the public. That includes pursuing readily available, cost-effective water resources before turning to deep underground reserves. Read the post at Water Deeply

SEC Climate Risk Disclosure Effort Under Serious Attack from Congress

What’s old is new again. As he did in both 2010 and 2012, Congressman Bill Posey, R-Fla, has introduced legislation to block common sense SEC reporting guidance on climate change risks for publicly traded companies. His proposals have gone nowhere in the past, but given the partisanship in Congress and the uncertain election ahead this time things are different. This month, the U.S. House of Representatives passed a financial services spending bill that included Congressman Posey’s amendment, which would bar the SEC from enforcing its 2010 climate risk disclosure guidance. In previous years, Congressman Posey attached this proposal to legislation that President Obama immediately threatened to veto. This misguided proposal will become a part of the larger negotiations to fund the federal government. In these high stakes situations, the President and the Senate are faced with a far greater number of tradeoffs to make – and a proposal like this could slip through. My nonprofit organization, Ceres, with leading members of our $14 trillion Investor Network on Climate Risk (INCR), were instrumental in petitioning the SEC to issue this guidance. The guidance helps investors large and small assess growing risks that companies face due to climate impacts. This is basic stuff. It’s not red tape, and its not bureaucratic overreach. In fact, it’s quickly becoming standard practice all around the world. The lifeblood of financial markets is accurate information, and a major part of the SEC’s mission is to ensure that publicly traded companies provide investors with information material to their performance. More than ever, climatic changes, water shortages, resource depletion and other related impacts meet this threshold of material financial risks. Investors have a right to know this information. It’s considered so important to investors that the international Financial Stability Board, at the request of G20 nations, has organized a climate risk disclosure task force chaired by Michael Bloomberg and staffed by former SEC Chair Mary Schapiro.  We all know that proper risk disclosure of the regulatory and physical risks of climate change is critical to investors, and this year that knowledge has gone completely mainstream, especially as scientific evidence of climate warming has grown and world leaders have come together to curb carbon pollution under the historic Paris Climate Agreement. The SEC’s enforcement of the 2010 guidance is not perfect. I’m the first to say so, as are investors who recently sent a letter to the SEC on this topic - but that’s an entirely different matter than legislators attacking well thought out disclosure rules that protect investors. If passed, this amendment would take away any discretion on the part of the SEC and further set back efforts to provide investors with the information they need to make sound decisions. This cannot happen.  Ceres and many INCR members will mount a comprehensive effort to ensure that key Republicans and Democrats understand that this proposal serves no one and harms investors – each and every one of us. Read the post at Forbes Sustainable Capitalism Blog

Wine, Beer and Medicine: 3 Companies Helping Solve California’s Water Woes

Despite recent news that drought-ridden California is sitting on top of large reserves of previously unrecognized, deep groundwater resources, the state still faces significant water challenges. Located at depths up to 10,000 feet below the surface, the newly identified groundwater in the state's Central Valley is likely to be salty and may have been contaminated by oil and gas drilling. Pumping and cleaning the water from such extreme depths could also be costly - more costly than turning to water sources we know we can "tap," like treated wastewater. Everyday an estimated 1.5 billion gallons of treated water are flushed into the ocean in California. But what if these billions of gallons of wastewater collected from kitchens, bathrooms and laundry rooms—and treated by municipal wastewater facilities—were further purified and put to use to supplement California's water supplies? Recycled wastewater, highly purified, is a resource the state should be tapping. And some California companies are already doing it. Take Sierra Nevada, the nation's third largest craft brewer. Headquartered in Chico, California, the company has long been ahead of the curve when it comes to sustainability, setting and achieving goals for waste, energy, water and transportation. Solar covers every inch of the brewery's roof, providing 20 percent of its energy and combined heat and power provide much of the rest. Among its many other initiatives, 99.8 percent of its waste is diverted from the landfill and its onsite composting facility recycles spent hops, grains and food scraps to fertilize the garden that supplies fresh produce for its onsite restaurant.   "It's how Ken [Sierra Nevada's CEO] wants to run the business," said Cheri Chastain, the company's sustainability manager. "There's a lot you can do on the sustainability front that has a reasonable payback with a moderate ROI."   Now the brewery plans to recycle an estimated 75,000 gallons of process water that it produces daily at its California brewery and reuse that water for its cooling towers and boilers. Eventually Sierra Nevada would like to use the remainder of the treated process water to recharge groundwater aquifers in Chico, thereby helping all water users in the basin, but that will take a slew of approvals from local and state authorities. Craft breweries use a lot of water, anywhere from 3 to 7 gallons for every gallon of beer produced and Sierra Nevada's plans will help the company achieve deeper water savings. Already it's been able to improve its water efficiency through small steps, such as by fine tuning rinses and fixing leaks and simply through economies of scale as the beer company has grown larger. It now uses 4.25 gallons of water for every gallon of beer it produces, a statistic that makes Chastain proud. But as Sierra Nevada projects future growth in a water-constrained state, it recognizes the need to become more self-sufficient regarding water. Genentech, a biotechnology company, based in South San Francisco, has reached a similar conclusion. Water is a critical ingredient for production and for the precision cleaning that's required in the manufacturing of life-saving medicines. And in California, ensuring a consistent supply of high quality water is becoming increasingly more difficult.   That's why in 2015, the company publicly committed to a 20 percent absolute reduction in water use by 2020 from a 2010 baseline. It's been implementing a suite of initiatives to increase its water efficiency since 2009, cutting water use over five years by a whopping 87 percent per unit of product at its South San Francisco facility. But to get to absolute water reductions, the company needs to take bolder steps. One such step the company is planning is the installation of a centralized gray water system that could cut its water use by approximately 60 million gallons of water per year. The system would recycle process water for reuse in cooling, irrigation and toilets. Then there's Fetzer Vineyards, a Mendocino County winery, which has taken an entirely different approach to recycling its wastewater. Fetzer is building an innovative biological wastewater treatment system that will use the digestive power of red worms and microbes to recycle 100 percent of its wastewater. That's right—worms! And billions of them.   Fetzer Vineyards estimates the system will treat 15 million gallons of water annually, which the winery will re-use for vineyard and landscape irrigation. The system accrues energy savings up to 85 percent over current wastewater treatment technologies and produces worm castings, which enhance fertilizer applied to vineyards. Fetzer Vineyards has already reduced water used in its winery by employing a cleaning product that saves 200,000 gallons annually, but the new wastewater treatment system takes its water efficiency up a notch. These three companies, which are doing their part to create a more sustainable water future in California, share a few commonalities. First, their leadership recognizes the value of embedding sustainability across all aspects of their operations and decision-making. Second, they have all joined Ceres' Connect the Drops campaign, an effort to elevate the voice of business leaders in advocating sustainable water policies in California. Each of the campaign's two-dozen members are implementing their own initiatives to preserve the state's precious water supplies while lending their voices to critical conversations ongoing in Sacramento about the state's water future. One such conversation involves clarifying the rules and regulations that will make it easier for companies and municipalities to recycle their wastewater and achieve big water savings. "Connect the Drops is about connecting like-minded companies," said Chastain. "And it's about bringing our voice to legislative decisions. The more we can do that the more successful we're going to be." And the more likely we won't need to pay greater sums of money to tap the deep, possibly contaminated groundwater resources that Stanford researchers announced to the world last week. Read the post at EcoWatch

Why We Believe the Auto Alliance Review of Fuel Economy Standards Misses the Mark

  • July 6, 2016
Authored by Dan Luria and Alan Baum Last week, we published an analysis of how future fuel economy standards could affect the auto industry and its suppliers. Federal agencies are now reviewing these standards (the Rule), and auto analysts like us are eager to see what the new standards, which stretch out to 2025, will be like. Our analysis found that automakers can expect to remain profitable under the current National Program whether gas prices stay low or go higher. Under weaker fuel economy standards, however, we found that domestic automakers would be vulnerable to an oil price spike, as some consumers would buy from competitors that offer more fuel-efficient vehicles. This is similar to what happened during the mid- to late 2000s. The same day we released our analysis, the Auto Alliance, the auto industry’s lead trade group in Washington, released its review of the standards. Although our analyses were designed differently, here are some key issues to consider. Expected costs for technology My colleagues and I relied on a National Research Council report and other sources which found that the costs for improving internal combustion engines are in fact consistent with, or less than, the costs projected by the original standards, or Rule.  The Alliance’s review states that the Rule underestimates costs and overestimates applications rates (even though the industry agreed with the Rule’s assumptions in 2012). In fact, technologies such as weight reduction, stop/start, and advanced transmissions are more prevalent, and, in some cases cheaper, than what the Rule projected in 2012. Moreover, the Alliance uses outdated cost figures in some cases.  For example, its estimates for added technology costs in hybrids are from 2010 and are specific to a particular type of hybridization that was the industry standard at that time. As electrification expands, suppliers are making more and better batteries, and costs have been dropping significantly. Our study took a conservative approach, however, and did not assume continued battery cost reductions in the future, even though this is a reasonable assumption. Future costs could therefore be even less than what was projected by the original Rule. The Alliance review lacks necessary rigor Our analysis took a bottom-up approach, in which we carefully looked at various technology packages, their cost and fuel economy improvement impact, and used that to forecast each automaker’s projected future fleet.  We think that’s an appropriate way of addressing the issue. By contrast, the Alliance’s review took a top-down approach, examining industry averages and only sometimes breaking things down by car and truck mixes, and occasionally by segment. In our view, that makes the Alliance’s review less useful, because it does not provide the necessary detail to predict how the industry (with each company having a different approach) will meet the fuel economy requirements. Internal combustion engines, not hybrids, will drive compliance with the standards Our analysis illustrates that improvements in internal combustion engines (ICE) will be by far the most important strategy for meeting the standards.  In addition, vehicles sit on a spectrum of electrification, from gas engines that avoid idling with electric start / stop, to mild hybrids with regenerative braking, to full hybrids like the Prius, plug-in hybrids like the Volt, and to battery electric EVs like the Leaf and Tesla. When the Alliance compares fuel efficiency requirements to today’s “modern hybrids,” it conflates mild hybrids and full hybrids, which causes them to overestimate the role that electrification will have to play in meeting the standards, and conclude that 47 percent of 2025 vehicles would have to be hybrids.  In fact, given that ICE improvements (which incorporate some forms of electrification) will be the primary means of meeting the standards, we find that full hybrids would constitute just nine percent of the fleet. Consumers value fuel savings The Alliance says that, “Hybrids can be viewed as a surrogate for consumer willingness to pay for the most fuel efficient technologies.” My colleagues and I respectfully disagree. Consumers have embraced a full spectrum of vehicles with fuel savings technologies. For example, the rate of turbochargers and direct injection engines has increased dramatically even at higher cost to consumers. The Alliance’s focus on sales of full hybrids is misguided.  First, the degree to which automakers have effectively marketed hybrids to their customers is certainly debatable, and second, automakers have been methodically integrating fuel saving technologies into many more vehicles, from start/stop systems to advanced materials, and consumers have been willing to pay for those technologies. The past fleet is not the future fleet The Alliance review’s focus on the percentage of vehicles today that meet 2025 standards is irrelevant for at least three reasons:  1) the standards are calculated at the fleet level and are not dependent on the results of any individual vehicle, 2) the technologies applied are continuously being improved, and 3) Some vehicles have still not been subject to these technologies, but by 2025 certain improvements, including high speed transmissions, turbo charging, direct injection and lightweighting, will be standard.  Furthermore, the Alliance’s comparison of actual improvement for the model years 2005 to 2014 with projected required improvement for the model years 2012 to 2025 is misguided. First, the latter time period is about 30 percent longer.  Second, there were no new fuel economy standards driving progress on the books until 2011, so the relevance of model years that came before that is questionable. Market effects of low fuel prices Low fuel prices certainly affect the sales of alternative powertrains and the overall fleet mix between small cars and trucks and large cars. That’s something with which every analyst in this field would agree. However, the Alliance’s review doesn’t account for the benefits that automakers can accrue from low fuel prices. Our analysis shows that even under (unlikely) very low fuel prices of $1.80 per gallon, automakers would still be profitable because of a sales mix shift toward more profitable larger vehicles.  Last year is a good example of how this works: low fuel prices led many consumers to choose larger vehicles that are more profitable for the auto companies. At the same time, we saw that car buyers were happy to opt for more fuel-efficient variants of popular models. Indeed, the same week that we released this analysis, Ford announced its millionth sale of the EcoBoost-powered F-150, noting that fuel efficiency is among the key reasons given by purchasers of America’s best-selling truck. These issues are complex, and analysts will continue to disagree on key assumptions. But for the reasons outlined above, my colleagues and I hesitate to accept the arguments and subsequent conclusions in the Auto Alliance’s review.  Naturally, we’re open to hearing more from the Alliance. Fuel economy standards have been a powerful force in reducing the amount of oil our vehicle fleet consumes, and this is an exciting time for vehicle technology. About the Authors Baum is Principal of Baum & Associates, an automotive forecasting and research consultancy.  Prior to its launch, he was an analyst and forecaster with the State of Michigan, IRN, and The Planning Edge.  Luria is an independent industry analyst whose career included eight years in the UAW Research Department and 28 as VP and Research Director at the Michigan Manufacturing Technology Center.  Since 1990, Baum & Luria have collaborated on a respected quarterly forecast of North American vehicle, engine, and transmission sales and production.  The forecast has been used in numerous studies for OEMs, suppliers, unions, financial institutions, and non-governmental organizations, including this study.

State Policies Drive Utilities to Invest in Clean Energy Boom

Midwest utilities are embracing renewable energy and energy efficiency and supportive state policy is a major driver of this trend. A new Ceres report ranking 30 of the nation’s largest electric utilities shows that the top performing utilities on renewable energy sales and energy efficiency savings are typically based in states and regions with more ambitious clean energy policies. While most of the top scorers are on the coasts, Midwest utilities are catching up, thanks to some important state policy trends. For example, Xcel Energy saw a 15 percent jump in renewable energy sales from 2012 to 2014. Strong renewable portfolio standards in Minnesota and Colorado, where Xcel Energy has a significant presence, were key catalysts for the jump in green energy, which now accounts for 21 percent of its overall sales. Both states are pushing to get 30 percent or more of their energy from renewables. Federal tax credits and innovation in the industry are also helping increase utility clean energy deployment by driving down the prices of renewables. Now, wind, solar, and energy efficiency are some of the cheapest forms of energy throughout the Midwest.   Meanwhile, Michigan is benefiting from policies that reduce energy waste and encourage customers to save energy. Michigan’s two major utilities – DTE Energy and CMS Energy – are both achieving over one percent in incremental energy savings each year due to the state’s energy optimization standard, which requires utilities to reduce electricity sales by one percent each year. DTE Energy and CMS Energy ranked 6th and 11th in the report’s energy efficiency scores, with DTE achieving 1.45 percent in energy savings in 2014 and CMS Energy 1.21 percent in 2014. The standards are a proven winner for Michigan consumers. According to the Public Service Commission, ratepayers save more than $4 for every $1 of investment in energy efficiency. They also help the state avoid having to build costly new power plants and tap into one of the least cost energy resources—the energy we don’t use or need to produce.   While Michigan is making strong progress on clean energy – DTE and CMS both exceeded the state’s 10 percent renewable energy standard in 2015 – the legislature can take even bolder action when it considers comprehensive energy legislation later this year. When lawmakers reconvene, they should consider a proposal to achieve a combined renewable energy and energy efficiency goal of 35 percent by 2023 and—a move that will shield businesses and consumers from volatile fossil fuel prices and achieve bigger savings. No doubt, clean energy is here to stay. Utilities shifting towards clean energy will be best positioned to cope with federal policies pushing the power sector to reduce its reliance on fossil fuels.  As states begin to implement the EPA’s Clean Power Plan—aimed at reducing power sector carbon pollution by a third—states with existing clean energy policies will have an easier time complying with the new rules, since they already have clean energy included in their long range planning. Utilities in Ohio will have a tougher time complying with the Clean Power Plan since state lawmakers passed a freeze on renewable energy and weakened its energy efficiency standard in 2014.  Ceres analysis shows that Ohio’s electric utilities were making significant clean energy progress from 2012 through 2014 in ramping up renewable energy and energy efficiency. That progress will be curtailed if the freeze is not lifted. The clear conclusion of Ceres analysis is that clean energy policies are spurring utility clean energy investments and the states that have been ambitious are seeing the rewards—lower carbon pollution, thousands of new jobs, and reduced costs for consumers.

Watershed Protection Comes From Corporate Partners

One-third of Los Angeles County residents and businesses get their water from the San Gabriel watershed – a region that stretches from Santa Clarita to San Bernardino. The rivers and creeks that flow out of the San Gabriel Mountains recharge the local groundwater aquifers and provide an important water source for the millions of people who live downstream. But the watershed, which provides Los Angeles County with 70 percent of its open space and roughly 35 percent of its water, is in trouble – because of drought and the effect of the 3 million visitors drawn annually to the San Gabriel Mountains for fishing, hunting and other outdoor activities. The Forest Service does not have the resources to keep up with demand, and the once-bountiful region is vulnerable to trash, crowding, wildfires and heavy foot traffic, which can impede the watershed’s ability to recharge. Building on earlier efforts, the National Forest Foundation (NFF) launched the San Gabriel Mountains National Monument Fund in 2015 to expand critical restoration and stewardship projects for the region. Just last year, President Obama declared the region a national monument, permanently protecting the popular outdoor recreation destination. Many companies have since thrown their support behind NFF’s mission, including Coca-Cola. Like many local businesses, production facilities and millions of residents in greater Los Angeles, the company depends on the San Gabriel watershed. It’s no secret that Coca-Cola uses a lot of water to produce its beverages – including its popular water brand, Dasani. The water used to make the products is locally sourced, bottled and distributed by facilities in Downey and Los Angeles. Every 33 fl oz (1 liter) of beverage produced requires approximately 57 fl oz (1.7 liters) of water (in the U.S.). But faced with a changing world, the company has taken steps to reduce its water footprint, such as aiming to improve water efficiency in manufacturing operations by 25 percent by 2020 compared with a 2010 baseline, and by returning as much water to nature as it uses, by 2020. The snow-capped San Gabriel Mountains look over Chinatown in downtown Los Angeles Tuesday, Jan. 12, 2016. The mountains are a critical watershed for the L.A. area. (Nick Ut, AP) Representing a next level in corporate water stewardship, Coca-Cola is partnering with government and the local community. It demonstrates how corporate America can help tackle challenging water issues. Coca-Cola has invested $930,000 in restoring a portion of the San Gabriel watershed, establishing a memorandum of understanding (MOU) with the U.S. Forest Service to invest in riparian restoration by working with the service’s local office as well as youth conservation corps. Coca-Cola’s financial support, and volunteer teams, have helped remove Arundo donax, or giant cane, an invasive plant in the Los Angeles and San Gabriel rivers that sucks up five times more water than native species. The success of these efforts translates to 129 million gallons (490 million liters) of “replenished water” – worth nearly 200 Olympic-sized swimming pools. Coca-Cola has also supported NFF and the Forest Service for mountain meadow restoration and stream channel improvements, the effects of which total more than 265 million gallons (1 billion liters) of water back to nature. Such watershed restoration alleviates some of the pressure on the strained Colorado River, which provides drinking water for some 19 million of California’s 39 million residents. California currently uses nearly one-third of the entire river’s flow, but it may well face steep cuts to its supply in the near future. Lake Mead, the reservoir storing southern California’s share of the Colorado, reached its lowest point since 1937 this year, and experts say there is a 64 percent chance the water level in Lake Mead will drop low enough to trigger a federal emergency provision by 2019. Restoring more watersheds like San Gabriel can help California recharge local aquifers and maximize its water supplies to better ensure a more sustainable water future, with reduced needs for imports from afar. Corporate investment in the San Gabriel watershed restoration project reflects the next level of water stewardship. It’s not enough for companies to focus only on water conservation within their own four walls. Engaging at the watershed level and working collaboratively with other stakeholders is what will make a significant difference for generations to come. Read the post at Water Deeply