Imagine walking into a Walmart to buy a bag of potato chips and seeing not only how two competing bags of chips compare on price but also how they compare in terms of green house gas (GHG) emissions. Then, imagine the ramifications if both bags of chips cost the same, but one bag had twice the GHG emissions clearly identified next to its price! Get ready, this path toward price/emission competitive comparison officially begins on January 1, 2010.
The EPA’s Final Mandatory Reporting of Greenhouse Gases Rule took effect on December 29, 2009. As stated by the EPA, “Under the rule, suppliers of fossil fuels or industrial greenhouse gases, manufacturers of vehicles and engines, and facilities that emit 25,000 metric tons or more per year of GHG emissions are required to submit annual reports to EPA.” The gases covered include not just CO2 but also methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFC), perfluorocarbons (PFC), sulfur hexafluoride (SF6), and other fluorinated gases including nitrogen trifluoride (NF3) and hydrofluorinated ethers (HFE). The monitoring period begins January 1, 2010.
It will be interesting to watch how this information will shape consumer buying behavior in the years that follow.
One of the major drivers in the adoption of sustainability is the concept of the Sustainable CEO. These leaders have adopted reductions in CO2 as a strategic goal and today their management teams are working to achieve this directive. Sustainability performance standards as a criterion in the supply chain bidding process is a growing implementation tool being used to achieve the emission goals set by a Sustainable CEO. Another is the creation of “sustainability indexes” like those being developed by Walmart to enable customers with a comparative assessment of the sustainability of every product it sells. The EPA’s launch of a monitoring and reporting program covering GHG emissions provides organizations being led by Sustainable CEOs with a new and highly credible measurement tool for evaluating their suppliers and communicating product value to their customers.
Here’s one scenario on the impacts that could be created from the EPA’s reporting of GHG emissions:
Suppose there were two identical products (like potato chips) being offered at the same price at Walmart but one was manufactured by company #1 using electricity from a coal fired power plant while the other bag of potato chips was manufactured by company #2 using a combination of electricity produced from a natural gas fired power plant plus an onsite roof top solar system. Now, envision Walmart placing next to the in-store display price a green star for company #2’s potato chip because this chip had half the emissions as the potato chip produced by company #1 that used coal fired electricity.
Market research suggests that many of today’s consumers will almost always buy green if the competing products are at pricing parity. The idea of enabling consumers searching for price competitive “green” products through a credible “sustainability ranking” posted next to a price could be a major competitive advantage for retailers such as Walmart.
Now consider what this could mean for a community or even a country. Suppose company #1 using coal fired electricity is located in one state and company #2 using lower emission sources of electricity is located in another state. This new branding awareness will enable the Awareness Customer’s procurement of “Cost Less, Mean More” solutions creating the potential of shifting jobs and economic development from a state that emits more GHGs to states that emit less GHGs. If retailers such as Walmart applied this to imports, then the ramifications become global!
The final ramification of this new day in GHG reporting is the potential for the EPA and Congress to price & regulate GHG emissions. In this scenario Potato Chip Company #1 is not only placed at a competitive disadvantage due to the lowering of its brand equity from increased customer awareness regarding its emissions, but some combination of tax and government regulation makes producing the chips using coal fired electricity more expensive than the chip produced by Potato Chip Company #2 using natural gas and solar power electricity. We have now arrived at a market economy where going green also saves green.
These scenarios explain why I am such an optimist on the business opportunities emerging from a “Sustainable Economy” and the hope for a sustainable environment. Awareness Customers have $10 trillion in annual buying power. They are actively seeking to buy green products that at least cost no more than non-green alternatives.
Encouragingly, entrepreneurs and entrepreneurial companies are emerging with best practices in pricing, branding and marketing to realize this competitive opportunity. Remember January 1, 2010 as one of those key dates in history where something as seemingly minor as the EPA beginning a process for measuring and reporting GHG accelerates The Green Economic Revolution.