Green is Business GE trying to ride the new wave

WASHINGTON – “Green” is increasingly business — good business — around the globe. True, favorable regulatory and fiscal arrangements are still necessary to guarantee the viability of many businesses that produce and market environmentally friendly technologies. But subsidies are less crucial these days. Take wind mills for electric power generation in which Europe is the leader. The European Wind Energy Association indicates that since the 1980s the cost of producing wind power has gone down by 80 per cent. For more significant penetration around the world, the International Energy Agency calculates that costs will have to be cut by at least an additional 30 percent. Yet, European wind power industry leaders are confident that continued investment in R & D and economies of scale due to increased sales will accomplish this. Demand is growing. The sector is expanding.

BP Solar, the solar power generation unit of British Petroleum became profitable in 2004 with increased sales of 30 percent worldwide. So, the non oil offshoot of a major oil company is viable.

President Bush, speaking recently at the Virginia BioDiesel Refinery in Virginia, stated that, while biodiesel made with soy beans generated only 500,000 gallons of fuel in 1999 in the US, last year it accounted for 30 million gallons. Oak Ridge National Laboratory estimates that ethanol and biodiesel combined could provide up to one fifth of transportation fuel in the US within 25 years. Clearly a long way to go. Still, who would have thought 20 years ago of a US president stating that transforming soybeans into a cleaner transportation fuel is a real business?

Well, if we had any doubt left that the environment is now mainstream business, it vanished after Jeff Immelt, the CEO of General Electric, in the course of a carefully choreographed recent event in Washington, announced that the number two U.S. corporation in terms of market capitalization intends to focus on water and energy technologies as key components of its business strategy.

Under the banner of “ecomagination” GE will aggressively increase R & D funding and devote additional corporate resources to promote at least 17 proven technologies — from energy production to efficient engines to water filtration — that will improve the earth’s environment and thus the quality of life for millions of people. The technologies’ net effects will be measurable and the data gathered will be made public, thus creating standards that may help guide public policy. Among them: cleaner coal burning power plants whose costs will be brought down through increased efficiencies; more efficient engines for locomotives, airplanes and cars with lower emissions; desalination plants to increase water supply and filtration systems to make it safe. Immelt is sure that, by providing environmentally friendly solutions that address real needs, GE will make plenty of money. So, “ecoimagination” is not window dressing. This is core strategy.

Immelt’s reasoning is straightforward. The carbon based world economy is under severe stress. Oil at $ 50 a barrel is a reminder that we in the U.S. but also in the rest of the world depend on a source of energy that is increasingly more expensive, more scarce and potentially subject to supply disruptions; not to mention the pollution byproducts. Likewise, environmental concerns are no longer just niceties. They are at the center of the quality of life that we as human beings are going to enjoy.

If this is true in general, the argument for the adoption of state of the art new technologies is even stronger for poor countries. For the many and growing billions who live in the developing world there is a desperate need for new solutions. Indoor air pollution is a killer in rural areas and air pollution a menace in huge urban areas, while rampant disease due to unsafe water and non existing sanitation is only going to grow without the massive introduction of new technologies.

Tens of millions of Chinese (7 out of the 10 dirtiest large cities in the world in terms of air quality are in China) live daily with the consequences of extremely high air pollution in terms of diseases and lost productivity. And a study by the investment bank CLSA* indicates that China, already relying on coal for 68 percent of its primary energy consumption, will see air pollution increase 4 times 1990 levels by 2030. (Victor Mallet of The Financial Times writes that air pollution blowing from the heavily industrial Guangdong province has caused a severe deterioration in the quality of life and thus economic damage to environmentally conscious Hong Kong).

China is the world’s fastest growing economy. Immelt’s GE has already estimated that China and other large growing developing economies (India, Indonesia, Turkey) will provide in the years ahead 60 percent of the company’s growth. In launching the “ecoimagination” strategy, Immelt now connects the dots. He is clearly planning to make China a big buyer of these technologies. And why not? China is committed to growth; but not at the cost of self-destruction due to environmental ruin. If GE can provide solutions that do not sacrifice growth, they’ll buy them.

Of course, other major international players such as Siemens, ABB or Suez are already doing this in China and around the globe.

But GE’s announced strategy has similarities to IBM’s decision to enter the PC market. That move indicated to all around the world that PCs were a real business with long term prospects. As GE joins the environmental technology pack, by virtue of this powerful endorsement, the pack is bound to get bigger and bolder. The promise is that this new focus will fill real needs. In the developed world it will help cut energy costs, while improving the environment. In the developing world GE and its competitors can become key enablers for true, sustainable development.

Finally, if the environment proves to be big business, then it may provide the competitive edge that the US and the West in general need in order to maintain leadership positions in the world economy. In the 1980s, when we started hemorrhaging manufacturing in America, very few thought that Information and Communication Technologies could create high value products and services and significant new employment. Maybe environmental technologies and the myriad of services that are bound to sprout and develop around them will help unleash the next wave of American innovation.

*Air Pollution in Asia:

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