$58 a Barrel Oil: Save Your Balance Sheet…and the Planet

Posted in The Strategist on August 1st, 2005

On Saturday, June 18, I was struck by two articles that highlight an opportunity to dramatically improve the financial performance of most of the world’s businesses, and save the planet in the bargain. The first was a report in The Globe and Mail noting that the price of crude oil had surpassed $58 a barrel. The second was a comment in Patagonia’s spring catalogue about innovation and sustainability. To the casual reader these may appear to be unrelated items, but they’re not. Let me explain. At $58 a barrel, the cost of manufacturing, transporting and servicing virtually any product becomes perilously uneconomic for any business still wedded to fossil fuels. Balance sheets that were already bleeding will now start to hemorrhage. And of course, as many experts have long been telling us, reliance on an energy source that is shredding our planet’s life support systems through climate change is the antithesis of prudent risk management. This brings me to Patagonia. Long a pioneer in the outdoor clothing and equipment field, the company also has a distinguished history of genuinely educating customers and other stakeholders on sustainability. Nowhere is this more evident than in the company’s newest catalogue. An essay on innovation points out that the challenge for business is no longer simply about finding new ways to solve old problems; it’s also about asking whether the innovation is healthy for the environment.

For too long it has been too easy for business not to truly innovate on energy. The price of oil was low, or within an acceptable risk profile and the costs of decarbonization were seen as being unacceptably high. In the face of those hard financial numbers, any additional pleas to altruism or social responsibility fell on deaf ears. Those days are gone. And perhaps that’s the silver lining to $58 a barrel oil. Perhaps now we can see innovation harnessed to alternative energy. Herewith then, a five-point call to action:

(i) businesses should quickly develop and incorporate alternative energy rules into all capital expenditures – a condition for any new expenditure is that the energy source be non-carbon;
(ii) energy efficiency must be dramatically promoted in every sector of society – it should become a badge of honour for a business to tout the money it has saved through these efforts;
(iii) governments across the northern hemisphere should set a target of 50% of all energy being non-carbon;
(iv) all vehicle fleets should be transitioned to hybrid and alternative fuel status; and
(v) the big three auto makers in North America need to step up their level of activity on the creation of hybrid and other technologies – these are the energy sources that will fuel the future, but only if the boys in Detroit start to think of them as something other than novelties or curiosities.

Jared Diamond’s bestselling new book, Collapse, which chronicles the failure of previous civilizations to negotiate a relationship with the Earth that is sustainable, provides a useful point of context as we think about energy and our world. Too many of us live at a remove from nature, a remove that blunts our understanding of nature and our dependence on nature. Too many of us go through our days in a quest for ease, comfort and convenience. And of course, too many of us, especially in North America, are consumers – whose sense of self is defined through the acquisition of stuff – cars, sport utility vehicles, boats, sea-doos and ski-doos – that perpetuate a dependence on fossil fuels. This dependence is largely responsible for the removal of half the world’s original forest cover, the collapse of most of the world’s marine fisheries, and the conversion of natural habitats to human-made habitats, notably cities. Recent evidence from the Millennium Ecosystem Assessment research indicates that 60% of the ecosystem services that support life on Earth are being degraded or used unsustainably – 60%!

If these ecological signals didn’t convince us previously, maybe oil at $58 a barrel will. Our backs are against the wall and it’s time to act – decisively, confidently, without fear. Can we learn from our mistakes – both historical and recent? Can we begin to chart a course that is deliberately different from the civilizations of the past? John Ralston Saul’s new book, The Collapse of Globalism, argues that we live in a storm between two weather fronts in which nationalism is reasserting domestic interests in both positive and negative ways. This is sustainability on a vast canvas; the argument writ large. And make no mistake; oil figures prominently in our global dilemma. We now stand at a crossroads on our evolutionary path. In one direction lies almost inevitable collapse. In another, lies an exciting future of cleaner air, healthier people, and new types of economic opportunity. I know which path I’ll be choosing.