The Meaning and Usefulness of Sustainability In Relation to Energy:
Resource Limits, Efficiency, Innovation, Population, Growth, and Different Ways
of Looking at Them
The concept of sustainability usually refers to the
conditions we leave for future generations in terms of resource availability,
environmental conditions, and functioning systems. Sustainable energy systems
would typically refer to energy systems that do not degrade the environment, do
not accelerate climate change, and do not deplete resources. However, all
energy systems can cause some environmental degradation and most deplete
resources so some sort of acceptable balance has to be found between overall
human improvement and environmental impact.
Patrick Moore, in exploring sustainable forestry gives an
insightful characterization of the idea:
“On one level, sustainability is an ideal state in which the
actions of today’s generation have no adverse impact on the opportunities of
future generations. On another level, it is a pragmatic, rational approach to
changing our behavior in order to conserve rather than squander our natural
resources so future generations have more choices. There is no perfect state of
sustainability. It is a relative concept that requires a high level of
strategic planning and consideration of details.”
I think it is important that he notes both that it is not a
perfect state and that it is a relative concept. Many of the issues regarding
energy sources, resource depletion, and environmental protection are nuanced
and not ‘black and white.’ He also invokes pragmatism and rationality. Thus the
approach to solving many of these problems involves drawing up ‘best practices’
that evolve with technological improvements and better understanding. The
long-term impacts also need to be built into any planning. Reduce-Reuse-Recycle
remains a key mantra of the sustainability movement. We might think of doing
this as optimizing both the value and life cycles of products.
Petroleum engineer and current Society of Petroleum
Engineers president Nathan Meehan favors the following definition:
“Meeting the needs of today
without compromising the ability of future generations to meet their own
needs.” (WCED 1987).
Meehan laid out a list of things the oil & gas industry
could do to promote sustainable development in his very good article referenced
below: 1) Minimize methane emissions, 2) reduce or eliminate flaring, 3) energy
efficiency and conservation, 4) wellbore integrity, 5) reduce surface footprint,
6) eliminate spills, 7) optimize field development and management. New
technologies including drones can be used to reduce methane emissions, flaring,
and spills. Better casing and cementing materials and practices can improve
wellbore integrity. Multi-well pads, especially those targeting stacked
reservoirs are a good and efficient way to reduce surface footprint, share
resources and infrastructure, and reduce waste. Spill reduction needs to be pursued
at all levels. Optimized field development and management can increase overall
efficiency, reduce ineffective practices, and lower costs. He also notes that company
sustainability reports are becoming the norm for oil & gas companies as
well as service companies, as they are elsewhere. I could even do one for my
very small consulting company.
In the 21st Century, sustainability is basically
expected of us. It is a concept now addressed in the majority of businesses’
interactions with their shareholders and the public. When businesses are not
engaging in sustainable practices and that becomes known, they should expect to
be confronted. However, since there are some disagreements about what is really
sustainable or not in specific areas, they may be able to argue that their
practices are indeed sustainable. Integrity of data, facts, and accurate
knowledge of impacts is required in order to determine if practices are
sustainable or not. Data can often be interpreted in different ways to support
different positions so science needs to be solid.
Since energy companies are strongly associated with carbon
emissions, pollution, and accidents with environmental consequences in the form
of spills, leaks, explosions, and fires, they need to have not only
well-organized health, safety, and environment policies, but also internal
cultures that foster sustainability and encourage adoption of ‘best practices.’
Lax safety cultures have been blamed for serious accidents.
Corporate Social Responsibility (CSR) policies have been
criticized as mere ‘add-ons’ to policy statements, websites, and shareholder
communications. Commitment needs to be at a more fundamental level and a key
part of the mission of the business, say John Mackey and Raj Sisoda in their
book, Conscious Capitalism. Milton
Friedman-style statements that profit for shareholders is the sole goal of
business no longer apply in today’s world, particularly in industries that by
their nature have significant environmental impact, such as energy development.
Shareholders are most certainly not the only stakeholders in business ventures.
The public and the environment are also for the most part stakeholders and must
be considered. This has been awkward for energy companies as has been the
realization and/or denial that their very future existence is threatened by our
need to reduce carbon emissions as well as by the specter of depletion. The
so-called triple bottom line model of profit, people, and planet – or economic,
social, and environmental values, is gradually taking hold as people and
businesses seek a world that is more equitable in these regards.
Alex Epstein, in his articles and in his book, The Moral Case for Fossil Fuels, makes a
very good case that the primary standard for evaluating fossil fuel development
should be human and society improvement rather than environmental impact. This
is especially applicable to developing countries where energy poverty is a real
issue that threatens people. In more affluent countries we seek reduction of
negative environmental impacts. There is much argument about where to draw the
line between acceptable and unacceptable environmental impact and arguments
will continue to be refined and debated. While he makes a good argument against
those who over-elevate non-impact, there is no reason not to wholly pursue
reduced impact. Epstein rightly points out that the resource depletion worries
of Paul Ehrlich and John Holdren (Obama’s science advisor) were simply
incorrect. Julian Simon would point out that their definition of a resource was
simply incomplete and so incorrect. A more accurate definition of a resource includes
humans’ technological ability to process it into a usable product and to do so
economically. Thus, we create a resource as much as we recover it. Epstein
notes:
“Sustainability is not a clearly defined term. According to
the United Nations, it has over a thousand interpretations, but the basic idea
is “indefinitely repeatable.””
This seems also to describe renewable energy, which has
serious issues with reliability, scalability, integration, and cost. Epstein
probably goes too far in calling renewables regressive technologies but he does
note that over-amped sustainability policies could force people to live under unnecessary
austerity conditions.
In terms of resource limits one might say that we have a
responsibility to use energy efficiently and reduce wastage of our valuable
non-renewable energy sources. Although immediate supply and demand set energy
prices, the true value of non-renewable energy is also affected by its finite
nature. Theoretically, these resources will peak and there will be changing
costs and recoverabilities due to both technology and economics as time goes
one. At some point in the future it is likely that renewable energy sources
will be able to compete with less subsidies than current and eventually with no
subsidies. If the effects of climate change become more apparent and if more
data continues to support prevailing models and more catastrophic models then
the energy transition to renewables will be accelerated. Recent events:
pipeline protests, federal lease sale protests, calls to exempt federal lands
from fossil fuel leasing, fracking bans, calls for local control of fracking,
export terminal protests and denials, the lawsuit against Exxon, etc. suggest
that the organized anti-fossil fuel contingent is emboldened as ever. At some
point in the future when more renewables are on the grid and in transportation,
then questions of “stranded asset” liabilities of some high-cost long-term
energy projects such as deep ocean projects may well come into play, especially
if oil and gas costs remain low. Coal has been devalued and the whole industry
is contracting, except in certain areas where demand is still high. The “Keep
It in the Ground” campaign, while having some apparent misunderstandings of
economically recoverable reserves and the effects of denied production, will
likely continue to be in the news, especially if weather events and climate
data continue to suggest climate change influence and support prevalent climate
models.
It is often assumed that ancient peoples, particularly
hunter-gatherers of the past had lived sustainably. However, evidence suggests
that that has not always been the case. Megafauna and birds in the Americas,
Australia, New Zealand, and other places have been hunted to extinction by
ancient peoples. Locally, overhunting among such groups is still happening
today. The traditional slash-and-burn agricultures cause emissions and
deforestation. Europe, a good chunk of 19th century North America,
and many other places have been deforested by demand for wood fuel and wood for
building. In that sense the advent of fossil fuels tended to slow deforestation
as wood was no longer the main source of heating and cooking fuel. Irrigation
farming caused salt accumulation that fouled the soil in the Ancient Near East
and other places. The Fertile Crescent lost much of its fertility due to
civilization and its accompanying deforestation and agriculture. Nowadays water
wells have reduced water tables in aquifers to dangerously low levels in many
places in the world. Agriculture is by far the major use of water as a
resource. Water resource depletion is a price we pay to feed ourselves and
future generations must be considered in trying to mitigate the problem.
Phosphate resources are mined for its use as a fertilizer with world supplies
dangerously low and recycling expensive. Nitrogen and phosphorous loading and
runoff is leading to zones of oxygen depletion in rivers, lakes, and oceans.
Resource depletion is also a factor in renewable energy and
supporting technologies. Lithium for batteries comes from both mining and
drilling. Cobalt, graphite, copper, and several other metals and rare earth
elements are also used in these technologies. These resources will be stressed
as renewable energy use increases. Both population growth and economic growth stress
resources. Overfishing, deforestation, nitrogen and phosphorous overload, local
water availability, land degradation, loss of habitat, and soil erosion are
among the results of such growth, especially population growth. Economic growth
does help enable us to solve such problems so the so-called “de-growth”
movement probably won’t help keep us from approaching these “planetary
boundaries.” As Julian Simon noted, one cannot separate human ingenuity from
the definition of a natural resources. Thus technical recoverability of a
resource is a part of that resource and so too are economical recoverability
and practical recoverability. Even if it is technically possible to recover a
resource, if the economics do not work and if it is impractical due to
environmental problems and/or public opposition, then that resource is not
recoverable and so not really a resource under those conditions.
Other considerations in sustainability are sourcing of
materials and services. Local sourcing is often favored due to lower carbon and
pollution footprints. Favoring responsibly grown food, wood, or energy sources
as determined by various sustainable certification schemes is encouraged. Waste
reduction is favored to get the most value and the least overuse. To some,
sustainability is an even more encompassing term that can inform education,
localism, addressing racism and bigotry, and even preserving indigenous knowledge.
It is a term often used by those who promote alternative media, green building,
renewable energy, opposition to fossil fuel use and development, and opposition
to mechanized “factory farming.” Some see the use of natural materials as more
sustainable than the use of synthetic materials but there seems to be no strong
basis for making such conclusions since natural materials can be harmful as
well as synthetic ones. For many, these ideas embody the concept of
sustainability and the use of fossil fuels in particular is seen as
unsustainable. While that is true in a sense – fossil fuels are finite
resources which can’t be used forever and without reducing their use we may
endanger the global climate – it is also true that fossil fuels have made our
lives better in myriad ways and continue to bring people in the developing
world out of poverty. They may not be sustainable in the long term but they
save lives and improve lives for many. Their availability, low cost,
reliability, and scalability still make them the best choice for many.
Energy companies, like most corporate entities these days,
typically address sustainability issues, in stakeholder reports and on their
websites. Disclosure of climate risks due to climate events that might occur is
another consideration. The risk of stranded assets is another. Long-term
investments in the highest carbon emissions fossil fuel sources are considered
unsustainable. This is a secondary argument of the divestment movement – that
those assets risk losing value as the world decarbonizes.
Transparency and accountability are terms harped in
sustainability advocacy. DNV-GL CEO Elizabeth Torstad notes: “Greater
transparency by the industry on environmental risk management processes and
sustainability reporting will give the sector {oil & gas} much needed
credibility and speed up sustainability improvements as a business advantage.”
She emphasizes sustainability reporting which requires accurate assessment of
impacts. While such assessment can have costs it is likely to become standard
for more industries. There is also opportunity for significant cost improvement
through investments in energy efficiency. The move toward running drilling rigs
and frac pumps on natural gas can have cost improvements in some areas,
especially where field gas in dry gas areas can be used. Equipment run on
natural gas is also quieter.
Another aspect of sustainability might be changing business
models. The past business models of utility companies to sell more energy are
not considered sustainable these days. Changing over either partially or fully
to models where energy services are sold instead of or in addition to energy is
a trend that is set to grow in the years to come. Thus, decoupling profits from
sales in the utility industry is happening. This is best done with the help of
regulatory bodies so that the companies can still make decent profits while
also conserving energy and increasing energy efficiency. Doing more with less
through technology and smart business models is a sustainable approach.
California’s PG&E has a “load order” which requires energy efficiency to be
the “first preferred option for meeting new customer energy demand – ahead of
renewable and conventional sources of energy.” This model has worked as
California has managed to keep per capita electricity consumption flat over the
years while it has grown by about 50% in the rest of the U.S.
Socially responsible investing has been around for quite a
while now and it may be defined in different ways with different portfolios
discouraged and encouraged and these vary by investor. This is one way people
may choose policy with their dollars. The fossil fuel divestment movement has
been making their mark but there is variation here as well with some divesting
only from coal and some from oil and/or gas as well. This simply reflects
different views of how desirable and sustainable these products are currently.
Decoupling economic growth from population growth is
possible, especially in developed countries. Developing countries with economic
poverty, energy poverty, food poverty, and opportunity poverty especially need
economic growth to alleviate those poverties. Optimization of resource use and
reuse through efficiency, smart conservation, and technology such as automation
can increase such decoupling and many industries can improve in this regard.
Certification can be another aspect of sustainability. Not
unlike the certified organic category of food and plant products or the various
sustainable wood and forest products schemas there can be such schemas in
energy. One example is the Center for Sustainable Shale Development (CSSD)
where companies are certified based on their adopting of agreed upon best practices
in construction, regulatory compliance, containment, water management, and
other categories. Such best practices may go beyond mere compliance into some
over-compliance. This can influence other companies to do the same. Other
companies may not wish to be bound by the requirements of the CSSD but they are
free to adopt comparable best practices on their own. Being proactive in making
regulations may also lead to advantage. Some states have done this in various
ways in anticipating future federal requirements. Colorado’s methane emission
rules and Pennsylvania’s newly proposed methane emissions rules are examples. Another
aspect of this is that certainty in regulations leads to more predictable
compliance costs in the short-term and as technologies advance and best
practices become standardized compliance costs are likely to drop.
The Scandinavian social responsibility model emphasizes
over-compliance. The excellent essay by MBA student Jereme Altendorf referenced
below examines this approach. In it he seems to suggest that the notion of
competitive advantage is these days less due to the ability to comply minimally
with regulations since there are social and environmental advantages to
over-compliance. One potential social advantage is simply reputation. The
Scandinavian model utilizes a strong compliance culture as well which may
promote general business ethics. The essay stresses the Scandinavians
utilization of two key ideas: cooperative advantage and shared value. Altendorf
talks about making the business case for sustainability. When shareholder profit
is not held as the single corporate goal then other stakeholders’
considerations can be addressed and these other stakeholders often include
suppliers, the industry as a whole, customers, investors, other partners, the
public, and the environment. Shareholders need to be engaged and educated with
the goal of convincing them of the benefits of sustainable policies. The
Scandinavian model has replaced competitive advantage with cooperative
advantage, meaning that cooperation with all stakeholders can be as advantageous,
or even more so than competitive advantage mostly based on cost-cutting
including cost-cutting on compliance. Cooperative advantage creates shared
value among the stakeholders, particularly in the non-market environment, or rather
among the part of corporate culture that is not focused strictly on the market.
Shared value would seem to strengthen stakeholder cooperation so perhaps it is
a ‘virtuous cycle’ of sorts. Mackey and Sisoda also document that what they
call ‘conscious’ companies, those that incorporate sustainability, social
responsibility, and a wide view of stakeholders, tend to do better financially.
Altendorf participated in a study abroad that included engagement with Scandinavian
companies, including oil & gas company Maersk. While hardcore
sustainability advocates may deem oil & gas or any fossil fuel or
petrochemical companies unworthy to declare their own sustainability policies,
this is simply not true. Everyone can be sustainable to the degree they and
their industry are able. Remember, sustainability is a relative concept. Exclusion
is not helpful to anyone. In fact, companies that have more potentially
negative environmental (or social) impact can provide more benefits with good sustainability
and over-compliance policies.
GreenBiz journalist Mike Hower came up with what he calls
the four pillars of a corporate sustainability program: 1) Sustainability rests
on a continuum – this means that companies have varying levels of commitment to
sustainability and may vary on what they consider sustainable. Some stick with
the “low-hanging fruit” while others go beyond it; 2) Identify the core purpose
of the company beyond the profit motive – determine what services are being
provided to society by the company; 3) employee engagement is important – both management
and employees ‘on the same page’ regarding sustainability makes more sense; 4)
Be more forthright with sustainability policies – instead of just burying
policies in sustainability reports – make them more accessible and available.
He also notes like Mackey, Sisoda, and many others do, that sustainability
policies are best ‘built-in’ rather than merely ‘bolted on.’ Bolted on policies
might smack of ‘greenwashing,’ even if that is not the case.
References:
The Truth about Sustainability – by Alex Epstein, in Forbes Opinion
(forbes.com), March 30, 2016
Sustainability and the Role of Petroleum Engineers – by Nathan Meehan
(2016 SPE President), in Journal of Petroleum Technology, 2016
Scandinavian Lens for Sustainability and Social Responsibility – by
Anup Sheshadri, posted in Social Impact Group on LinkedIn, April 5, 2016
Business Ethics Yield Profit: What American Corporations Have to Learn
from Their Scandinavian Counterparts – by Tessa Ruddy, posted in Leadership
& Management Group on LinkedIn, April 5, 2016
Conscious Capitalism: Liberating the Heroic Spirit of Business – by
John Mackey and Raj Sisoda
Trees Are the Answer – by Patrick Moore, Ph.D. Ecology (Beatty Street
Publishing, 2010)
Industry Must Do Business Differently to Meet Sustainability Targets,
DNV GL Says – by World Oil, Aug. 29, 2016
Big World, Small Planet: Abundance Within Planetary Boundaries – by
Johan Rockstrom and Mattias Klum (2015, Yale University Press)
What Sustainability Means to Us – by BeeThinking, Backyard Beekeeping
Blog, Sept. 2016
Choosing a Sustainable Future: Ideas and Inspiration from Ithaca, NY –
by Liz Walker (New Society Publishers, 2010)
PG&E – Customer Energy Efficiency – in their
corporate responsibility section
The Moral Case for Fossil Fuels – by Alex
Epstein, (Portfolio/Penguin, 2014)
Beyond Compliance: Scandinavian Lessons in
Corporate Responsibility – by Jereme Altendorf, in LinkedIn, April 5, 2016
The 4 Pillars of a Corporate Sustainability
Program – by Mike Hower, in Green Biz, Dec. 14, 2016
