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A New Era for Sustainability Begins January 1

Bill Roth | Wednesday December 30th, 2009 | 3 Comments

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.

***

Bill Roth is the founder of Earth 2017 and author of The Secret Green Sauce that profiles best practices by actual companies in growing green revenues.


▼▼▼      3 Comments     ▼▼▼

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  • Jeff_Dubin

    I agree with Bill that the new greenhouse gas reporting rule has great potential to set into motion a process by which consumer goods are sold with greater transparency regarding their environmental impact. And this can trigger additional growth in green product sales but, sorry to sound like the Grinch so close to Christmas, I think it’s going to be a long, slow process.

    Products’ environmental impact ranks relatively low on the list of product features consumers consider when buying household products, at least in the case of household cleaners and personal care products. A study my firm Green Meridian conducted with over 600 women found that a product’s environmental impact ranks 9th for household cleaners and 8th for personal care products in the list of product features a consumer considers. Even when the most frequent green buyers are looked at, environmental impact ranks 5th in importance, with only about 63% saying it’s very important. I assume a similar pattern holds for foods like the hypothetical bags of potato chips mentioned in Bill’s post.

    Now it is very likely that with GHG emission data placed right in front of consumers’ faces, a product’s environmental impact will move up in importance for many consumers. However, more conventional product attributes, especially perceived product quality, will likely continue to trump environmental impact for the vast majority of consumers. So even if there is price parity, many other factors enter into the buying decision that will not be instantly displaced by this new “upstart” factor.

    I’d like to end on a positive note though. There is a substantial group of consumers out there that do not buy many green products now but who would like to green their purchasing. A key barrier has been their lack of awareness of green products and in-store ratings would go a long way to remedying this.

    • http://www.earth2017.com/ Bill Roth

      Hi Jeff, thanks for your comments. Research like yours is hugely valuable in understanding how consumers are adopting “green.”

      You make two key points I agree with. The first is that “green” is not a key driver compared to something like price. “Cost less, mean more” is the mantra for successfully selling “green.” I have been privileged to see market research that says Concerned Caregivers and the Millennial Generation will buy the “green” product almost everytime if this product is at least at price parity.

      The second is timing. Guilty as charged if I am being too optimistic but I think it is hugely significant that environmental impacts ranks 9th for household cleaners and 8th for personal care products. It was not too long ago where environmental impacts associated with a particular household or personal care product were not even on the consumer's radar screen. Today Green Works is a $100 million annual revenue household product. We will know the sustainable economy has arrived when the top ten household products are all “green.” This is not a tidal wave but rather it is a process and the good news is that consumers are increasingly buying, and businesses are increasingly offering, “cost less, mean more” goods and services. My economic analysis points to a time period around 2017 when the combination of pricing and consumer demand for “green” will grow into a $10 trillion global annual revenue economy or about 20% of the world's annual Gross Domestic Product. I encourage my business clients to focus upon the consumer's increasing adoption of sustainable goods and services as a revenues growth opportunity not to be missed especially in this “soft recovery.”

  • http://www.earth2017.com/ Bill Roth

    Hi Jeff, thanks for your comments. Research like yours is hugely valuable in understanding how consumers are adopting “green.”

    You make two key points I agree with. The first is that “green” is not a key driver compared to something like price. “Cost less, mean more” is the mantra for successfully selling “green.” I have been privileged to see market research that says Concerned Caregivers and the Millennial Generation will buy the “green” product almost everytime if this product is at least at price parity.

    The second is timing. Guilty as charged if I am being too optimistic but I think it is hugely significant that environmental impacts ranks 9th for household cleaners and 8th for personal care products. It was not too long ago where environmental impacts associated with a particular household or personal care product were not even on the consumer's radar screen. Today Green Works is a $100 million annual revenue household product. We will know the sustainable economy has arrived when the top ten household products are all “green.” This is not a tidal wave but rather it is a process and the good news is that consumers are increasingly buying, and businesses are increasingly offering, “cost less, mean more” goods and services. My economic analysis points to a time period around 2017 when the combination of pricing and consumer demand for “green” will grow into a $10 trillion global annual revenue economy or about 20% of the world's annual Gross Domestic Product. I encourage my business clients to focus upon the consumer's increasing adoption of sustainable goods and services as a revenues growth opportunity not to be missed especially in this “soft recovery.”

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