25 Mar Applying Digital to the Carbon Conundrum
If your goal is to tackle climate change with all the tools at your disposal, what digital tools should hold a spot in your arsenal?
It’s possible to hold two opposite ideas at once and still function.
I accept the science of climate change and that human activity, particularly the burning of fossil fuels, is having an effect on the climate. Over the years, I’ve had the fortune on multiple occasions to visit the same location of Australia’s Great Barrier Reef at the same time of year, and the changes I’ve directly observed have been shocking. Even if you personally don’t believe in climate change, the next generation of consumers seem convinced, and they’re walking out of school to transmit their price signal.
I also observe that the fossil fuel industry has been instrumental in bringing prosperity to much human existence, by bringing light to the dark, heat to the cold, and force to the inert. From 1993 to 1995, I worked regularly in China, and my photos from that time are very revealing — blue skies, bicycles everywhere, no cars, no street lights, and door to door coal delivery by donkey cart. Coal plus iron ore plus oil has lifted 500m people out of poverty by hyper extending the performance of the agricultural, transportation and manufacturing sectors.
Keep doing what we’re doing, and we’ll surely move 500m people into the middle class and lift the remaining 500m out of poverty, but at the expense of possibly irreversible damage to our earthly garden of eden. We’re all about to be tasked with figuring out a new balance between our use of energy, the economies that power our lifestyles, and our impact on the natural environment—the Triple E, or EEE for short.
The IEA has identified digital innovation as one of the key tools that can help decarbon our societies, extend our use of fossil fuels, and enable our transition to newer forms of energy, aimed at striking that new balance.
Assume that the environment is the reactive participant of this trio—the environment reacts to how we create and use energy, and how our economies consume our resources to sustain our life styles. It falls to humans to manage proactively the energy and economy elements of the triple E.
The tragedy of the commons
The costs of making changes to our energy use, or to our economies through regulation or taxation are localized to specific jurisdictions, but the benefits accrue globally beyond our borders. GHGs inconsiderately ignore national borders. We can clean our air in Canada, but what’s the point if China doesn’t follow suit?
The fairness equation
The consequences of choices in energy use or how our economies operate penalizes some segments of society while benefiting others. We can ban pipelines into BC to avoid possible coastal fouling, but that’s unfair to BC oil workers trying to supply oil for BC’s forestry industry.
We feel all virtuous because we are furious recyclers, or we embrace the 100 mile diet, while we live in Truckotoks, drive our Ford 150’s to buy groceries, and vacation in Puerto Vallarta. Celebrities and executives charter over a thousand private jets to fly to Davos to discuss EEE. Climate change is someone else’s problem.
The agency perception
We tell ourselves that any personal contribution we make to solve the climate problem doesn’t matter because tiny changes are irrelevant. Canada is just 1.8% of global GHG emissions. China emits the same quantity of GHG as Canada every 25 days. Cut emissions by 50%, and so what?
I hold these two conflicting ideas at the same time, that the very thing that has lifted us into prosperity, comfort and flourishing is also threatening our climate. Things have to change, but creating winners and losers in this shift only breeds more yellow vest demonstrations.
The actors in our EEE equation have limited levers to pull to drive change, and here’s just a few to consider.
To change social behaviors in an economy or in energy use, governments can create a price signal by imposing a carbon tax, or by implementing a cap and trade market, or by regulating for emissions.
To maintain pressure on the other actors, non governmental organizations (NGOs) can maintain registries of big emitters, conduct ‘Name and Shame’ campaigns, pressure investors to decarbonise their portfolios, intervene in energy and economic proposals, and litigate for change.
To maintain their brands, avoid climate risks and continue their growth, businesses can adopt carbon accounting alongside other measurements, implement voluntary greening programs, transform their supply chains, or implement an internal carbon price.
And what about the rest of us? We’re encouraged to go vegetarian (as meat is one of the most egregious carbon sources), adopt electric transportation (if it’s available), put solar panels on your house (if you have an idle $15000 that might never pay off), fly less (no more sunny holidays), and put on a sweater.
The Digital Response
In a race between fossil fuels and technology, I posit that technology is going to win. Technology is surfing Moore’s Law of exponential improvements, while fossil fuel energy plods along with marginal gains. Eventually, as technology is applied to the EEE challenges, it will find winning solutions.
These are the levers for carbon management that are highly susceptible to digital innovation.
I’ve been in any number of meeting rooms with some poster of a racing yacht or a pit crew, underwritten with some syrupy business truth about measuring things.
- What gets measured gets rewarded.
- You can’t fix what you can’t measure.
- In God we trust. Everyone else, bring data.
- Subjectivity measures nothing consistently.
- If you can measure it, it’s not love.
Most of the SCADA systems of the past were not designed for emissions tracking. Adding an army of expensive engineering talent or management accounting people to measure emissions is not plausible for many companies and industries. This is a job for automation — internet of things and analytics.
Cap and trade
Inventing credits for carbon emitted and not emitted, pricing those credits, enabling the trading of credits—only an economist could come up with such an elegant answer that combines everything you don’t understand about stock markets with everything you don’t understand about green house gases.
Blockchain could be the solution to uniquely identify a carbon credit so that it’s not counted twice, and manages the credit through its life cycle of purchase, sale, exchange, and disposal.
Working from wherever
Digital innovations are already enabling a huge shift in work to the gig economy. Cloud computing, encryption tools, collaboration technologies, gamification, augmented reality, AI and other digital tools allow workers more freedom than ever to work from wherever they happen to be, rather than in the office of the past. As we adopt the latest telecoms standards, more work options will open up.
Automation of equipment
There’s a lot of driving about in oil and gas because the assets in the industry are spread out. Just for fun, use Google Earth to zero in on Odessa Texas and check out all the oil wells, far from civilisation. The industry really needs smarter assets that self manage, using the data from their own sensors and interpreted by their on-board artificial intelligence engines. This will trim the requirement for people to drive long distances (a carbon intense activity) to visually inspect the equipment, check fluid levels, record data from gauges and carry out routine maintenance.
Supply Chain Greening
I’ve been involved in hundreds of supply chain businesses, and in the past, carbon has rarely factored into any thinking about the design of the supply chain.
Consider a running shoe. The design is from California, but the upper might be cotton sourced from Pakistan, which is woven and dyed in India, and cut in Viet Nam. Lowers may be cast in factories in Eastern Europe but stitched to the uppers in Chinese factories. Eyelets are punched out in Taiwan, laces might come from Colombia, with plastic eyes attached in China. The cardboard box is from the US, ink and labels are from Germany, final packaging is completed in southern China, and finally shipped to US markets. Clearly the carbon impacts of these logistics did not influence the supply chain configuration.
Additive manufacturing will be one of the key digital tools that helps industry rethink the supply chain design with carbon in mind.
These are the levers for carbon management that are not as susceptible to digital innovation, and may be addressed using existing tools.
With a handle on actual emissions, the next step is to account for the emissions—volumes, intensity, timing, source activities. The accounting enables the accountability, or the pressure on someone to act on the accounting. The business gene for making things better kicks in, with plans, budgets, targets, timetables, penalties, and rewards. You can see it in action at Shell, who now tie manager bonuses to carbon impacts.
A sure way to get managers to pay attention to something is to give it a cost. They can then weigh up where to invest to yield the best cost or productivity outcome. Managers don’t need a real carbon price to take action. They can equally use a phantom price or a shadow price.
Finally, lower the thermometer and put on a sweater.
Check out my new book, ‘Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, available on Amazon and other on-line bookshops.
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