1980 was the last time we had an oil price collapse. Americans buying fuel-efficient vehicles created the 1980 oil price collapse, just as they have contributed to today’s oil price collapse. But what consumers did in response to lower pump prices during the 1980s does not bode well for today’s pursuit of sustainable solutions for our economy and climate change.
Will history repeat itself, where the 2014 oil price collapse undercuts our adoption of sustainable technologies?
The oil industry has done a great job of self-promoting their increased production capacity as the reason for the collapse in oil and gasoline prices. Let’s get the facts right: The world has been, and continues to be, awash with oil supply. The world has been producing 90+ million barrels of oil per day for several years.
The reason oil cost $100 per barrel and gas prices sat above $4 per gallon was because of soaring global oil demand that was sucking up the world’s oil production. What has changed in terms of collapsing gasoline prices is that the global demand for oil is falling. The three factors driving oil prices down are:
- Americans are driving more fuel-efficient vehicles
- The millennial generation is living a digital rather than fossil fuel-based lifestyle
- China’s economic growth slow-down has cut oil demand
It is this combination of reasons tied to reduced oil demand — not increased oil supply — that has collapsed oil prices and reduced your pump-price pain.
The sales results of Black Friday and Cyber Monday confirm new consumer behavior — meaning business must change to grow sales. This new sales reality is based upon Americans consuming better. The question is, will consuming better will be enough to restore our economy, human health and the environment?
Holiday shopping season results
This holiday sales season is being driven by consumers prudently managing their purchases around a target budget. In response retailers are pushing ever larger price discounts to win their share of the consumer’s procurement budget. A marketshare price war is now a business norm. The consequences are continued weak economic growth plus an ongoing business focus upon cost reduction to maintain profit margins that does not bode well for 2015 wage increases.
The other business reality from today’s holiday season is that price discounting alone no longer guarantees sales success. Consumers are exercising higher expectations on how a product aligns with their values on quality, service, health, wellness and environmental/social responsibility. Consumers want it all. They want heavy price discounts on products that align with their values. This holiday shopping season is confirming that sales success now depends upon offering consumers “cost less, mean more” products and services.
Consuming better and sustainability
This holiday shopping season again confirms that consumers have not adopted sustainability as a core best practice. The American consumer has accepted that they must consume better. They are shopping with more financial prudence. They are consuming better by focusing upon whether a product aligns with their values. What the vast majority of consumers have not embraced is sustainable consumption with a focus upon reduce, reuse and repurpose.
In 2007 I first posted my research forecasting a multi-trillion dollar green economic revolution. By 2014, this projection has been realized with a global economy delivering price-competitive sustainable solutions like rooftop solar, LED lighting and organic food. So, why are we not celebrating?
The sobering reality is that this economic success appears to be too little and too late in terms of the latest scientific findings. The scientific community projects that the pace of man-made greenhouse gas emissions, now defined as a carbon surge, is pushing the world into irreversible human and economic damage. If our world and economy now stand on the cusp of irreversible climate change damage, then the question of the 21st century is whether there still remains a path toward a sustainable solution.
The U.S. electric utility industry now confronts a new disruptive business reality from China’s announced commitment to source 20 percent of its energy from renewable technologies like solar and wind. This commitment is not a “non-binding charade,” as characterized by Republican Sen. James Inhofe of Oklahoma.
China faces an environmental wall that blocks its continued economic growth. The country must restore the healthiness of its air, water and food or confront a costly degradation in worker health. China has no choice but to shift toward zero-emissions renewable energy.
China’s massive commitment to renewable energy will create economies of scale that will shatter current price levels around the world. Its success will bring to scale the technologies and processes required to integrate renewable energy into an electrical grid. China is on a path that will push the U.S. electric utility industry over a renewable energy cliff.
What is an economist doing writing about an election? As a numbers guy, the statistics from the November 2014 mid-term election demands attention because of their implications for our economy and sustainability.
A lack of voter participation was the most telling statistic of this last election. Voter participation was a record low 33 percent. This means 66 percent of potential voters were so unmoved by the candidates and the issues that they did not participate. The obvious question (economic and political) is: Why did the majority of voters vote for ‘none of the above?’
Business now operates within a carbon surge economy: Carbon surge — rapidly rising concentrations of atmospheric greenhouse gases — is rapidly raising the risks and cost of doing business. Extreme weather tied to the carbon surge is reducing business revenues by disrupting customer access to stores and websites. Increasing evidence of climate change tied to the carbon surge is pushing consumers, especially the millennial generation, to question what they buy and who they buy from.
This consumer shift is threatening utility revenues while growing the sales of smart, energy efficient technologies. The net result is the emergence of an economy defined and shaped by carbon surge.
Carbon surge evidence
The World Meteorological Organization’s latest report finds that a carbon surge in climate-changing emissions has pushed atmospheric CO2 concentration to 142 percent of the pre-industrial era, with methane and nitrous oxide levels at 253 percent and 121 percent of pre-industrial levels. The ocean’s ability to absorb greenhouse gases may have reached its limits — with ocean acidification now at levels unseen for over 300 million years.
Carbon surge’s threat to business costs
A carbon surge economy is a costlier place to do business. Examples of how carbon surge and the inceased incidence of extreme weather are increasing business costs include:
- Rising electricity and fossil fuel costs tied to increased regulation of climate changing pollution;
- Increased commodity costs, plus increased price volatility, as extreme weather events disrupt or destroy supplies;
- Increased property insurance tied to the increase in extreme weather damage claims;
- Lost productivity due to electrical service disruption;
- Lost productivity due to storm and weather related worker attendance disruptions.
The millennial activist is now driving revenue growth in the American economy. Their quest for products and companies that are “cool with a purpose” is driving the revenue success of Apple, Google, Patagonia and Chipotle. They are also a key demographic group that is driving down the revenues of McDonald’s, Coca-Cola and your local utility. Figuring out how to successfully align with millennial activists is now the strategic challenge facing every business.
Millennial activists seek solutions
For 40 years the American economy has been driven by a boomer generation that demonstrated for peace and love during their teenage years but then, after Woodstock, “sold-out” to their personal consumption. It was the boomer generation that embraced fast food as America’s diet choice because it was tasty, fast and cheap. The boomer generation created suburbs of less energy-efficient homes, linked to their workplaces through an urban commute too often executed in full-size vehicles powered by V-8 engines. To fund their consumption, they made the working mom an economic reality along with credit card debt and unsustainably high mortgages. The unintended consequences of the boomer generation’s decisions include a national obesity and diabetes epidemic, pump/meter price pain driven by energy demand, and increased government regulations to address the human and planet health impacts from record levels of air emissions. Our economy now struggles to grow against the headwinds of costs and debt created from the boomer generation’s consumption decisions.
The millennial generation seeks solutions to the problems they have inherited from their parents. This is not a personal rejection of their parents. But it is a rejection of lifestyles built upon energy inefficiency, consumer debt and unhealthy food consumption. Led by pioneering millennial activists, the millennial generation is rejuvenating downtowns across America. They are choosing to live in more energy-efficient, in-town homes to gain the benefits of social participation, diversity and sustainability. They are adopting lifestyles built on healthy foods, walking/biking to work, sharing rather than purchasing and the adoption of digital technology to enable productivity while also reducing their environmental footprint. Influenced through millennial activists, the millennial generation is adopting a new culture built upon best practices that align value with values.
McDonald’s store sales just took another nose-dive. Global same store sales tanked more than three percent. One investment analyst entitled his analysis of McDonald’s prospective sales growth as “That’s not ketchup…it’s blood.”
The three stated reasons for McDonald’s sales declines were: competition; the company’s own missteps, including a TV story in China showing work associates mishandling chicken; and “shifting consumer tastes.” The harsh sales reality for McDonald’s and other fast food retailers is that consumers increasingly associate eating their food with being fat and unhealthy. For the millennial generation focused on being “cool with a purpose,” the eating of fast food is definitely not cool or purposeful.
Fast food schizophrenia damages brand equity
The marketing of fast food is schizophrenic. Fast food used to be well understood by consumers as being cheap, tasty and convenient. Now the same fast food restaurant chain will run simultaneous schizophrenic ads where it promotes a healthy chicken wrap in one ad and its supersized hamburger loaded with bacon and cheese in another. This marketing schizophrenia only serves to undermine the customer’s understanding of the chain’s core values. In comparison, Chipotle’s stock continues to soar to record levels based on its singular marketing focus of selling sustainably-sourced, good food.
Tesla Motors founder Elon Musk has once again demonstrated business leadership by offering a business solution to climate change. Musk’s act of leadership is to open-source his company’s invaluable intellectual property for building world-class electric cars to the global auto industry. Musk’s actions must look crazy to many business leaders and Wall Street “financial engineers,” and they must be questioning whether it violates Musk’s fiduciary obligation to shareholders. In fact, Musk has once again demonstrated real business leadership by creating a viable path to solving climate change that also holds the potential of accelerating his company’s financial success.
100 million fossil fueled vehicles per year is not sustainable
The global auto industry produces 100 million fossil fuel vehicles annually. (In comparison, the U.S. fleet of automobiles is approximately 250 million.) This is not sustainable in the face of climate change, continued sectarian wars in the Middle East, and the price of oil defined by its escalating and volatile pump price. Electric cars with their zero tailpipe emissions, especially if the electricity is supplied from zero-emissions renewable energy like solar and wind, is a solution. Musk’s vision is that the electric car can deliver exciting performance and cost-effective operations without damaging our planet or our health. Musk’s actions to remove the legal barriers to his company’s cutting-edge technology opens the door to realizing a sustainable car industry.
A demographic tumult is pushing America toward a sustainable economy. This demographic tumult is the nexus of an aging boomer generation, the emergence of the millennial generation as America’s economic powerhouse and the growing role of women. Each of these demographic groups has their own sustainability definition and focus. But with $10 trillion of combined annual buying power, these three demographic groups are collectively reshaping the American economy around sustainable best practices.
Who we are as a nation is undergoing tumultuous change. The boomer generation is downsizing past its previous role as the core of America’s economy. For example, because this generation overwhelmingly failed to save during their peak earning years, they must remain employed in often lower level job categories to maintain income levels beyond their limited social security payments. To make the most of their diminished earning potential, they are downsizing their homes, cars and expenditures.
The millennial generation is on the cusp of picking up the role once assumed by the boomer generation as one of the dominant economic forces in the world. In 2017, they will replace the boomer generation in terms of U.S. annual buying power. But unlike the boomer generation this generation is delaying the start of their families. In 1970 approximately 40 percent of American families were married couples with school-age children. Today that number is under 20 percent.
Women continue to grow in economic power. They influence 80 percent of household budgets. They have an estimated $8 trillion of annual buying power. Women are the majority in attendance and graduation from college. But women continue to confront economic and societal pressures. Approximately 40 percent of child births are to unmarried women. More than a quarter of working women who are unmarried with children have incomes below the poverty level. Women still make less money than men for comparable jobs. They continue to be underrepresented in upper management and in the boardroom.
Have you ever broken out into a smile from opening your electricity bill? I just did when I opened this month’s bill and saw I owed $4.91. At first I thought there must have been a mistake. But after much searching on my four-page bill I found a one-line item called the California Climate Credit that cut my bill down to less than $5.
This credit is the latest of California’s outside-the-box public policy ideas for addressing climate change: California is taxing climate changing pollution to fund credits on residential electric bills.
How the California Climate Credit reduces electric bills
The California Climate Credit is an idea enabled through California’s AB32 legislation that mandates a 29 percent cut in emissions below the levels the state is currently projected to produce in 2020. To achieve this scale of emissions reduction, California has adopted a free-market approach of taxing pollution called cap and trade.
Cap and trade is similar to a game of musical chairs. Each year California sets a lower threshold of permissible CO2 emissions — in effect, removing a “chair.” If you are a refinery or power plant, then you have to bid against other polluters to “sit at a chair” and continue to emit CO2. Like musical chairs, each year the number of chairs — or the amount of allowable pollution — is reduced. That means polluters either figure out how to pollute less or increase their bid price to buy a seat from the ever-shrinking inventory of available chairs.
The food industry’s revenue growth is now being driven by a consumer mega-shift from fast foods to healthy convenience food. This trend has catapulted Chipotle’s stock to more than $500 per share. It is reshaping your local 7-Eleven convenience store that now offers healthier food featuring freshly made sandwiches and fruits. And this consumer mega-shift is why the sale of the Coca-Cola Co.’s iconic sugary drinks are falling. Positive evidence on the health implications of Americans adopting a better diet is now surfacing with an encouraging report that the rate of diabetes for our youth is falling.
Natural Food Expo attendance explosion
I have been attending the Natural Food Expo West for years. It used to be a niche event held in a modest facility. The 2014 Expo was one of the most heavily attended events I have ever attended across industries (rivaling the solar industry for its attendance growth over the last few years). Healthy food vendors now fill several floors of the huge Anaheim Convention Center. The line to secure an attendance badge involved hundreds of people, stretched the length of the center’s main hall and remained that way for much of the morning. Healthy food has leaped from a marketing niche to a revenue growth engine for the food service industry.
Guaranteed lower electricity bills enabled by innovations in the financing and insuring of energy efficiency and renewable energy projects will soon be transforming the commercial real estate industry. These innovations enable zero-down financing. Project payments are tied to measured “negawatt” results. No “negawatts,” no payment made by the property owner. And most critically, performance insurance supplied by a creditworthy financial institution satisfies the risk of non-performance for the building owner and the bank that supplies project financing.
These breakthroughs hold the potential of dramatically reducing the 33 percent of operating budgets the commercial real estate industry pays to utilities. It could meaningfully reduce the commercial real estate industry’s greenhouse gas emissions that currently represent 20 percent of total U.S. emissions. The greatest potential from these innovations is their ability to fund net-zero energy buildings.
Women delivered a strong and very frank message to the business community at the Feb. 6, 2014, EPA hearing on carbon pollution standards tied to electric utility generation. Their message was that protecting the health of their loved ones is an absolute. And they see coal-fired power plants as a health threat to themselves and their families. Reinforcing their testimony was the more than 3 million messages the EPA received on the issue of carbon pollution standards.
Listen or face the business consequences
I recommend every businessperson seeking to win or keep women as customers reflect upon the following tweets shared by Moms Clean Air Force from this EPA hearing:
- “Clean air keeps our children in schools, and people on the job…increasing productivity.”
- “Clean air is vital to healthy women and healthy babies.”
- “A fossil fuel based economy is a bad business decision.”
- “We’re not buying the argument that strong, bold carbon regulations are going to hinder the economy”
This next tweet is one that should keep business leaders up at night if they source electricity from coal-fired power plants that represent the leading source of mercury pollution: “Who bears the costs of pregnant women w/ mercury in their bodies?” On a human level, what business or business leader wants to have this type of impact upon a mom and her baby? On a business level, what could the damage be to sales and profits if women hold this viewpoint toward a business based upon its purchase of electricity sourced from coal-fired power plants?