Go green to create green   |  May 5, 2008  

Environmental initiatives can drop huge savings to the bottom line, and it’s IT that will get you there

By Jim Harris

Big Blue recently launched Project Big Green, a program through which it will invest US$1 billion per year to dramatically increase its energy efficiency. IBM claims to operate the world’s largest commercial technology infrastructure, with more than eight million square feet of data centres on six continents in 2007. And it plans to double the computing capacity of its data centres within the next three years. Normally this would require it to double the size of its facilities; under the Big Green efficiency plans, it will do so without increasing power consumption or its carbon footprint.

As part of this strategy, the company virtualized 3,900 distributed servers—45 per cent of its worldwide total—onto just 33 system z servers. In the process, the company cut electricity use by 80 per cent and dramatically reduced its carbon footprint by 2.5 million tonnes per year. This equates to taking a million cars off the road. IBM expects this will save more than five billion kilowatt hours of energy per year, with projected savings over five years of US$450 million.

In other words, green creates green. And reducing the electricity that goes into the actual boxes is just the beginning: technology has a lot more savings in store.

Starting with data centres
Data centres generate a huge amount of heat and, therefore, require expensive cooling systems. So reducing the number of servers saves operating costs and reduces air conditioning bills. This is significant as a typical 25,000-square-foot data centre spends US$2.6 million in power annually.

Why is this important? Per square foot, data centre energy costs are 10 to 30 times more than those of a typical office building, and data centres have doubled their energy use over the last five years.

Some IT departments haven’t embraced the shift because they fear it will result in staff reductions, but IT’s role is actually going to increase in importance as we go forward. Instead of patching distributed servers and checking cabling, IT professionals will engage in more interesting work such as designing, implementing and tweaking smart systems.

Adding smarts to systems
Energy use can be reduced by 75 to 90 per cent, according to studies by the Rocky Mountain Institute, without changing our lifestyles. This can be accomplished by applying practical, proven and existing technology.

The key is distributed embedded intelligence. For example, intelligent sensors installed in an office building can turn off the lights when there has been no movement detected for a period of time. Or, in an underground garage, the fans can turn off when no cars are idling. In one such application, a $600 investment in sensors yielded $25,000 a year savings. Over a decade that’s savings of $250,000 for an initial $600 investment—or a nine-day payback. These initiatives catch the attention of CEOs and CFOs.

Smart systems are applicable outdoors as well. A staggering 70 per cent of the world’s fresh water usage is for agriculture. But irrigation is hugely inefficient as it relies on dumb systems that are either all on or all off. An intelligent irrigation system measures soil moisture and only waters when needed. The system also tracks weather forecasts and reduces watering when rain is expected. Intelligent irrigation systems can cut water use by 70 per cent.

Also, smart grids promise to shave electricity usage during peak demand times. Logic systems attach to those devices in houses or offices that draw significant amounts of electricity. These systems communicate and turn off appliances when required while, for example, running a freezer before its internal temperature climbs too high.

Or imagine an electric car that downloads electricity at night at five cents a kilowatt hour and then, if the owner is away during the day, sells it back into the grid at 17 cents during peak usage times.

With these applications it’s easier and cheaper to save money and increase profit than to make money and waste it through inefficiency.

Cutting carbon
Many strategies for reducing CO2 emissions actually generate a profit, according to findings from McKinsey, one of the pre-eminent management consulting firms worldwide.

McKinsey shows that 46 per cent of reduction projects generate savings, and if those savings are invested in additional low-cost reduction strategies, companies could achieve approximately 70 per cent of the proposed Kyoto targets, at little or no cost.

Green is green
GE’s CEO Jeffrey Immelt declared recently that “Green is green,” and his company plans to invest US$1.5 billion in green research and development and targets US$20 billion in green sales by 2010.

Wal-Mart announced it will spend US$500 million on sustainability projects with paybacks of four years or less. Given that Wal-Mart operates on three per cent net margins, the company would have had to achieve US$17 billion in top-line sales to get the same benefit, and even for the largest retailer in the world, that would be daunting.

So while Wal-Mart may have begun its green odyssey for PR purposes, now the company has seen the bottom-line benefits and those have become a central corporate goal. In fact, the company is pressuring its entire supply chain to become energy efficient.

Oil pressure
The price of oil has risen from roughly US$10 a barrel in 1999 to US$110 per barrel in March 2008, and new data on global oil production over the last three years shows that we have hit peak oil. Peak oil doesn’t mean we’re out of oil—there are still about a billion barrels left under the Earth’s crust—but we’ve reached the maximum rate of extraction. As demand continues to rise two to three per cent per year, prices will inevitably continue to rise.

In the first oil crisis of 1973, the price quadrupled in 18 months. Japan, entirely dependent on oil imports, realized the vulnerability of its economy and began the most aggressive energy efficiency program in history. The net result was that Japan’s heavy industries—such as petrochemical, cement, pulp and paper, and steel—were able to significantly improve their energy efficiency, in some cases by more than 35 per cent.

By 1987, Japanese steel makers were 41 per cent more energy efficient than their American counterparts. The result: 230,000 American steelmakers lost their jobs over the next decade because U.S. steel companies were the most energy inefficient of the major global players.

So was energy inefficiency an advantage or a huge liability?

Canada: most inefficient in OECD
As the most energy inefficient economy among the G8—and, in fact, among OECD countries—Canada faces a huge liability. The only less efficient economies are Iceland, Kuwait and the United Arab Emirates. We consume roughly the same amount of energy per person as in the U.S., but produce 20 per cent less GDP for energy input.

When the Conservative government attacks Kyoto, it is defending gross energy inefficiency. As the rest of the world’s economies dramatically improve, Canada falls further behind.

The good news is that Canada’s grossly energy inefficient economy offers a huge opportunity to radically improve, protecting jobs and the economy.

Failing to do so creates a ticking time bomb in terms of inevitable job loss. Becoming the most energy efficient economy globally would create hundreds of thousands of new “green collar” jobs in Canada, and insulate our economy from job loss.

GM, Ford and Chrysler have actively resisted government-regulated fuel efficiency standards in both Canada and the U.S. If, instead, they had embraced efficiency, their sales would not have plummeted as the price of oil has risen dramatically.

So going green is good not just for ecological imperatives but for economic ones, too.

Marketing green

Some marketers track a segment called LOHAS: Lifestyles of Health and Sustainability. In 2005, this segment represented only three per cent of North American consumers, but it has exploded to 43 per cent today.

The LOHAS market represented US$229 billion in America in 2006 and will almost double to US$420 billion by 2010 and then US$845 billion by 2014. LOHAS consumers believe it is important for companies not just to be profitable, but to be mindful of their impact on the environment and society.

So companies are going green because they want to win market share or are afraid of losing it. HSBC was the first bank to go carbon neutral in 2005. Why? Because the company wanted to capture the lion’s share of financing for green power deals—wind, solar, tidal and others—which will be worth hundreds
of billions of dollars over the coming decades.

Barclays Bank then followed suit, because it wants to be a dominant player in
the rapidly emerging carbon trading market—estimated to be worth US$2 trillion a year by the UN Environment Program Finance Initiative.

Jim Harris is the author of the international bestseller Blindsided, published in 80 countries worldwide, and The Learning Paradox, nominated for the national business book award. E-mail him at jimh@jimharris.com