Amory Lovins, Hunter Lovins, & Paul Hawken
Road Map for Natural Capitalism
Harvard Business Review 1999
INTRODUCTION
1. Earth’s ability to sustain life-including economic activity–is threatened
a. By way we extract, process, transport and dispose of a vast flow resources (220 billion tons a year)
b. Is this true? Sustain life? Sustain quality of human life?
WE IGNORE ECOSYSTEM SERVICES
2. We ignore and thus degrade ecosystem services
3. Businesses only look at exploitable resources of earth’s ecosystems (E.G., forests, oceans, plains), not at the larger services that those systems provide for free
a. On nature of ecosystem services click here
4. Forest example:
a. The resource they provide is wood
b. Services provided include water storage, habitat, regulation of atmosphere and climate, soil stabilization, flood control
c. Businesses earn income from harvesting wood often do so in way damage forests’ ability to carry out their other vital tasks
5. We damage ecosystem services because value of those services does not appear on business balance sheets (nor in GNP)
6. Value of ecosystem services that nature provides for free is estimated at 33 trillion a year (in 1999), comparable to the gross product of the entire world
a. For this estimate click here
b. For most of these services there is no known substitute at any price and we can’t live with out them
NATURAL CAPITALISM
7. Paper advocates: Natural capitalism
a. Change way we run businesses so that
i. The biosphere is protected
ii. Realize that economy is embedded in the envrionment
iii. The “natural capital” of ecosystem services (our most valuable asset) is properly valued
iv. Profits and competitiveness improved
b. There are simple changes using advanced techniques for making resources more productive that yield startling benefits for both today’s shareholders and future generations
8. Four major and interrelated shifts in business practice needed
a. (1) Dramatically increase productivity of natural resources
b. (2) Redesign production according to biological models
c. (3) Solution based business model
d. (4) Reinvest in natural capital
(1) DRAMATICALLY INCREASE PRODUCTIVITY OF NATURAL RESOURCES
9. We need to stop wasting so much:
a. Make natural resources (energy, minerals, water, forests) stretch 5, 10, even 100 times farther than they do today
b. Energy thrown off as waste heat by US power stations equals total energy use of Japan
10. How? By
a. (a) Implementing whole-system design and
b. (b) Adopting innovative technologies
11. (a) Implementing whole-system design and thinking
a. Consider the industrial system as a whole and not part by part
b. Example of 92% energy decrease in redesigned pumping system:
i. Interface engineer cut energy use in pumping system of factory by 92% by simple changes in design mentality
ii. Choosing more expensive fat pipes (lowered friction) which allowed for smaller pumping equipment (instead of cheaper thin pipes and more expensive pumping gear)
iii. Laying out the pumps in a way that allowed for short/straight pipes, instead of the usual way of letting the pumps be placed in a arbitrary positions and then twisting the pipes to fit.
(1) Pipe fitters profited from the earlier system of extra pipes and fittings and did not pay for oversized pumps and electricity bills
12. (b) Adopting innovative technologies
a. Adopt alternative environmentally friendly technologies
i. Many already available and profitable and not widely known
ii. Blocked by cultural rather than economic or technical barriers
13. Auto industry example
a. Only 1% of energy consumed by today’s cars is actually used to move driver
b. Only 15-20% of power generated by gasoline reaches the wheels
c. Like typewriter industry before advent of personal computers, auto industry is vulnerable to displacement by something completely different
d. Hypercar
i. 85% reduction in fuel, 90% reduction in material used
ii. Carbon fiber (strong for safety, but real light, only 1/3 weight)
iii. Aerodynamic design and better tires, reduce air and rolling resistance by over 50%
iv. Together save 2/3 fuel
v. Hybird electric motor saves another chunk of fuel
e. Could make pollution free, high-performance cars, SUVs and pickups that get 80 to 200 mpg
i. With no compromise in quality or utility
ii. W/o government mandates or subsidies
iii. People will buy them for same reason buy CDs rather than records: superior product
f. Hydrogen fuel cell powered hyper cars (20 kilowatt power plants on wheels) could be plugged into a grid and sell back electricity
14. Examples of other efficiencies available
a. Automatic electronic lights that dim lights to match daylight
b. Design and retrofit building to be energy efficient
c. New windows reduce flow of heat/noise four times better
d. Leads to increased labor productivity (people work better in well designed and efficient buildings)
i. Huge financial savings
e. 1980s California’s industry grew by 30% and cut its water usage by 30% (to avoid fees)
f. Dow Europe cut office paper flow by 30% in six weeks by discouraging unneeded information
i. Mailing lists eliminated and senders of memos got back receipts indicating if information was wanted by recipient
g. ATT paper costs cut by 15% when it set default on office printers and copiers to double-sided
h. New technologies can strip off old printer ink and let paper be reused 10 times
i. Savings in paper and construction industries could make wood fiber so productive entire world’s current needs could be met by intensive tree farm size of Iowa
(2) REDESIGN PRODUCTION ACCORDING TO BIOLOGICAL MODELS
15. Biomimicry: Emulate nature’s techniques
a. Spiders convert digested flies into silk that is as strong as Kevlar (w/o boiling sulfuric acid )
b. Abalone can convert seawater into an inner shell twice as strong as our best ceramics
c. Trees turn sunlight, water, soil and air into cellulose, a sugar stronger than nylon but less dense
d. Smart designers see that nature’s benign chemistry offers attractive alternatives to industrial brute force
16. Closed-loop manufacturing
a. Waste equals food (eliminate waste)
b. Every output of manufacturing either composted into natural nutrients (returned to ecosystem in benign way) or re-manufactured/reused
17. Examples
a. When Motorola found out CFCs used in cleaning circuit boards was destroying ozone layer and were thus outlawed, it redesigned its process so no cleaning was needed
b. Xerox saving $1 billion by re-manufacturing its new entirely reusable or recyclable line of “green” photocopiers.
c. Germany and Japan make many manufacturers responsible for their products forever.
d. Interfaces’s Solenium a new floor-covering material that can be completely re-manufactured into identical new product
i. So much better it does not market it as an ‘environmental’ product, just a better one.
3. CHANGE BUSINESS MODEL TO SOLUTION BASED MODEL
18. Shifting to a service business model
a. Leasing services
b. Solving problems and building long-term relationships with customers rather then making/selling products
19. Examples
a. Inteface instead of selling and fitting carpets, provides floor covering services for monthly fee (to keep carpets fresh and clean)
i. Clients want to walk on carpets not necessarily own them
ii. Usually replace carpets when portions worn; billions of pounds removed each year and end in landfills
iii. Since 20% of carpet shows 80% of the wear, replacing only worn parts saves about 80% material
iv. With above savings in material and better carpet product (“solenium”) reduced by 35 times flow of material they needed
v. They then remanufactured the old carpet and used renewable materials initially, reduced extraction of virgin resources to zero
b. Giant elevator company leases vertical transportation services rather than selling elevators (allows it to benefit from lower energy and maintenance costs)
c. Dow chemical prefers leasing dissolving services to selling solvent because can reuse same solvent may times, and this reduces costs
d. World’s largest manufacturer of air conditions moving toward selling cooling services instead of air conditioners
i. Also helping to make buildings more efficient so need less A/C, (or none) to get same level of comfort
ii. Get paid to provide the agree upon level of comfort, however delivered
iii. Higher profits from better solutions rather than selling more equipment
4. REINVEST IN NATURAL CAPITAL
20. Good business reinvests earnings in productive capital
21. Natural capitalists must reinvest in restoring, sustaining an expanding the most important form of capital–natural habitat and the biological resource base
22. If flow of services from industrial systems is to be sustained or increased for a growing population
a. Vital flow of services from living systems will have to be maintained and increased also
23. W/o reinvestment in natural capital, shortages of ecosystem services likely to be the limiting factor to prosperity
24. When a manufacturer sees a key supplier overextended and running behind on deliveries, it takes immediate action or only production will stop
a. Ecosystem is a key supplier of key components for life on planet and it is falling behind on its orders.
25. Companies that protect the ecosystems they use do better with consumers
26. Strong environmental rating is a consistent predictor of profitability
27. Changing industrial processes so actually replenish and magnify natural capital can be especially profitable (as nature does the production)
a. Redesign cattle ranging to have the cattle graze more in right way; keep cattle moving, graze intensively mimic the dense and constant moving herds of native grazing animals
i. This management-intensive rotational grazing method yields superior returns
28. Working with nature is more productive than working against it
a. Todd’s biological living machines (tanks of bacteria and algae) turn sewage into clean water
b. Farmers, fisherman, forest managers that do this match or exceed high yields and profits of traditional input and intensive chemically driven practices
WRONGHEADED MEASUREMENT OF PERFORMANCE EXPLAINS WHY SO MANY BUSINESS HAVEN’T YET GONE TOWARD NATURAL CAPITALISM
29. Faulty instruments companies use to measure performance and hand out rewards
30. Markets full of distortions and perverse incentives
a. Author’s identified 60 specific forms of misdirection
31. Main misdirections have to do with
a. How companies allocate capital
b. How governments set policy and impose taxes
32. Helps explain why profitable large resource savings identified here have not already been adopted.
33. Purchasing decisions
a. Decisions to buy small items often based only on initial cost rather than full life cycle costs (leads to major wastage)
i. Distribution transformers supply electricity to buildings cost only $320 each and most companies try to save quick buck by buying lowest price models
(1) Nearly all nations electricity flows through these transformers
(2) Using cheaper but less efficient modes wastes $1 billion a year
ii. Fatter wire in offices would save electricity costs, but people install thinner wire as costs less up front
(1) Electrician who chooses fatter wire (lowering long term electricity bills) doesn’t get the job
34. Perverse reward structures
a. Architects and engineers traditionally compensated for what the spend not for what they save
35. Government policy positively undermines natural capitalism
a. Tax laws penalize what we want more of (jobs and income)
i. Subsidize what we want less of (resource depletion and pollution)
b. Every state (except Oregon) regulated utilities are rewarded for selling more energy, water and penalized for selling less, even if production costs more than customer efficiency
c. Most of American arid West use it or lose it water laws encourage inefficient water consumption
d. Towns uses 1950s regulations for ultra wide suburban streets created by civil-defense planners to accommodate heavy equipment after a nuclear attack
36. Costs of perverse incentives
a. $300 billion in energy wasted each year
b. $1 trillion in unnecessary air-conditioning equipment
37. “Firing the unproductive tons, gallons, and kilowatt-hours often makes it possible to keep the people who will have more and better work to do”
NEED TO RECOGNIZE A SHIFT IN SCARCITY AWAY FROM PEOPLE TO NATURE (NATURAL RESOURCES)
38. Most businesses behave as if people were scarce and nature still abundant
a. True at the time of first industrial revolution, so made sense to mechanize when you have labor shortages
b. Made people 100 times more productive than ever before
c. But no longer true
39. Still makes sense to economize on the scarcest resource (as limits progress)
40. But now people aren’t scarce, but nature is
41. Examples: Production constrained
a. By fish, not boats and nets and fisherfolk
b. By forests rather than chain says and loggers
c. By fertile topsoil rather than plows and farmers
42. Unlike traditional factors of production (capital and labor), biological limiting factors can’t be substituted for
a. No technology or money can substitute for a stable climate and productive biosphere
NATURAL CAPITALISM IS INEVITABLE, GET ON THE BANDWAGON NOW
43. Natural capitalism reintegrates ecological with economic goals
a. It is both necessary and profitable
b. Will subsume traditional industrialism, just as industrialism subsumed agrarianism
c. Companies that make the changes first will have a competitive edge
d. Those that don’t make the changes won’t be around long