Corporate Canada Sees Profit in Going Green

Corporate Canada Sees Profit in Going Green

Sitting on a plateau over the Red Deer River, the NOVA Chemicals plant near Joffre, Alta., looms like a massive industrial fortress dropped down onto an otherwise idyllic landscape. With its dozen or so stacks thrusting out from rolling hills of hay, canola, and the occasional herd of cattle, this might seem like an environmentalist's worst nightmare. But looks can be deceiving.

Just across a gravel road from the plastics plant, and about 1,500 m underground, one of the most promising technologies for solving Canada's rising greenhouse gas emissions problem is at work. This is where Penn West Energy Trust is collecting unwanted CO₂ gas emissions from the NOVA plant (via an underground pipeline) and pumping it into an aging oil field. Deep underground, the CO₂ turns to liquid, mixing with valuable leftover oil and helping push it to the surface. At the end of the process, all the CO₂ - having helped boost the recovery of oil - remains safely underground. John VanNieuwkerk, the operator of the plant, proudly shows off the roaring and clanging twist of pipes, compressors and tanks used to pump the CO₂ underground and bring oil back up. "Garbage for one guy can be worth something to someone else," he says.

Like a growing number of companies across Canada and the United States, Penn West has discovered there are significant benefits to being green. At its Joffre project, over one million tonnes of CO₂ that otherwise would have gone into the atmosphere have been pumped underground - the equivalent of taking about 222,000 cars off the road for a year. In the process, an additional four million barrels of oil have been milked from a field that a few decades ago had been written off as useless. At another carbon-capture pilot project operated by Penn West, the company predicts it could sequester as much as 25 million tonnes of CO₂ (the same as taking 5.5 million cars off the road for a year). "It's a win for the emitters; it's a win for us, because we recover additional oil; and it's a win for governments because it solves a concern for the people of Canada," says David Middleton, chief operating officer of Penn West.

This kind of corporate embrace of environmentalism is becoming increasingly common among many of the companies thought to be the worst CLIMATE CHANGE offenders - large oil and gas firms and energy-intensive companies like retailing giant Wal-Mart or the courier company Purolator. While nervous politicians fret over the economic impact of environmental regulation, many executives are happily talking about the huge opportunities they see in scaling back energy use and emissions, and in some cases voluntarily setting their own tough emission caps. So fully have many large corporations adopted environmentalism that they're now leading the green movement, taking action and investing billions of dollars in an era when governments and the general public have been more content to pay lip service to the cause.

It is, however, important to make a distinction between responsibility and altruism. Corporate greening is very much about profit. Forward-looking companies are beginning to see the writing on the wall when it comes to GLOBAL WARMING, and understand that they can invest now in green technologies, and in many cases save money and win customers in the short-term, or pay the price later. "It's increasingly some of the leading edge companies out there that are seeing the business case for environmental initiatives and recognizing that climate change and other environmental issues are fundamental business drivers," says Fred Wellington, a senior financial analyst with the World Resources Institute. "Managing the risks and pursuing the opportunities is just sound business."

Wal-Mart Canada, for instance, recently announced a host of measures aimed at cutting emissions (19,000 tonnes this year) and waste in its stores. Among other things, it expects its efforts will eliminate the need for the equivalent of 22,000 garbage trucks. "We pay for those trucks," says Wal-Mart Canada's CEO Mario Pilozzi. "Yeah, it's good for the environment. It's also good for the bottom line."

In the oil patch in particular, this type of thinking has led to massive investments in everything from alternative fuels to technologies that can supplement traditional energy production. If there's a promising green innovation out there, chances are that behind it are a few of the companies environmentalists love to hate. "These are companies saying, 'Where's the opportunity for me to be involved? How do I balance my portfolio between renewable energy and bread-and-butter areas?' " says Eddy Isaacs, director of the Alberta Energy Research Institute. "This is not something government has started. It's been their own effort - a very progressive view," he adds.

Last month, energy company ConocoPhillips said it would start making diesel fuel from animal fats supplied by a Tyson Foods processing plant in Texas. The electricity company TransAlta is now the biggest generator of wind power in Canada. Others, like Suncor Energy, are also making big investments in the wind power business. Canada's biggest energy company, EnCana, is funding a tidal power project off Vancouver Island. Along with Penn West, EnCana has also ventured into carbon capture, and now operates the largest operation in Canada, in Weyburn, Sask. EnCana says it hopes to store 30 million tonnes of CO₂ underground there - the equivalent of taking over 6.5 million cars off the road for a year. "We've made money with it, it makes good business sense, but it's making a real contribution from an environmental perspective as well," says Gerry Protti, vice-president of corporate relations at EnCana. Other carbon capture projects are in the works (13 oil companies in Canada are investing in the technology). But without a pipeline linking major emitters to oil fields, the biggest concern now is finding enough CO₂ to sequester. "That's the big irony of it," says Brendan McGowan, an engineer at Penn West.

All this work adds up to some significant sums of money being invested in the name of environmentalism - enough to rival the on-again, off-again commitments by government. Penn West spent $27 million last year on the environment. TransAlta spent $30 million in 2005. Shell Canada estimates it spends close to $100 million each year. EnCana says it spends over $100 million each year. But these numbers don't take into account all the efforts companies make to reduce emissions and energy use that are often deeply ingrained in their business models. "We're investing in new technologies to improve efficiencies. That's not characterized as an environmental investment but it has an impact," says Protti. Conservative estimates place the industry's total investment at about $1 billion each year. (Research and development spending alone by the oil and gas industry in 2003 was over $760 million, according to Statistics Canada.) In its 2007 budget, the Conservative government pledged $4.5 billion in environmental spending, but much of that is spread over the next seven years.

These corporate greening efforts haven't gone unnoticed, as several leading companies have won the attention of some big names in the environmental movement. Al Gore has publicly praised Duke Energy, the largest utility company in the United States, for its push to cut emissions. Ditto with General Electric and Dupont. Likewise, the energy industry is starting to pay attention to environmentalists. Gore drew some harsh criticism from Alberta Premier Ed Stelmach last week, but the attack seemed in stark contrast to the standing ovation he received after delivering his An Inconvenient Truth slide show to Calgary's business elite that same day. Wal-Mart has also earned a nod from Gore, and its Canadian arm is abuzz these days following a speech given recently by David Suzuki, who called the company's environmental commitment "an inspiration and incentive to other corporations."

Praise like that means a lot. No stranger to bad press, Wal-Mart, perhaps more than any other company, has moved to publicly paint itself green. Last week, Wal-Mart Canada announced it is on track to become the largest buyer of green power in Canada. The company also said that its long-term goal is to produce zero waste, be powered entirely by renewable energy, and start selling more earth-friendly products. This summer it plans to hold its first ever "Green Supplier Fair" to start sourcing the goods. Wal-Mart even recently rearranged its stores so that customers have to walk past 24 feet of energy-efficient compact fluorescent light bulbs before reaching the old incandescent ones. It used to be the other way around. "The big deal is not the numbers," says CEO Pilozzi. "It's that we're trying to change the mindset of how we conduct business. We are very much wanting to be a better corporate citizen."

Other companies have been moving down that road for some time now. In 2001, Purolator started to think about the benefits of buying hybrid trucks to cut down on fuel costs and emissions, and teamed up with a B.C. company called Azure Dynamics to start building them. It has now ordered 115 hybrid trucks. While the public has been slow to buy up costly hybrids, Purolator is so enamoured with them that it has plans to start building its own zero-emission fleet and already has facilities to produce its own hydrogen. But despite the fuel savings, Purolator loses money on each hybrid it puts on the road, given the high production costs - about $40,000 more than a traditional delivery truck.

Purolator has taken the first steps, but it's still a long way from becoming the industry standard. The biggest roadblock, the company says, is that the government hasn't stepped forward with some form of first-mover subsidy to hasten the process and help reduce stifling production costs. Purolator has been "pleading and begging" for some support, says chief executive Robert Johnson. "We're looking for a receptive ear."

Purolator is by no means alone in its critique of government inaction. Many executives who are excited about the opportunities of going green are equally perturbed, confused, and frustrated by government dithering on the subject, both in Canada and the United States. Leading corporations, including many energy companies, are not, contrary to popular belief, resisting the idea of government regulating greenhouse gases. In fact, they crave the clarity and certainty such regulations would bring to the industry. "What the companies want more than anyone else is a clear indication as to what the government wants so they can make plans accordingly," says Mary Griffiths, a policy analyst with the Alberta-based Pembina Institute. Without a clear road map, investments in cutting emissions become very risky. "It makes it infinitely more difficult," says Tim Bancroft, the vice-president of sustainable development at Shell Canada. The oil industry points to the dramatic reduction in gas flaring and venting that was driven in part by tough restrictions put in place by the provincial government. The federal government's latest green plan, although criticized by many, could similarly provide some much-needed direction.

This call to arms has been especially evident in the United States. Last January, a coalition of businesses there, including Duke, BP, DuPont and General Electric, released a report calling for a 60 to 80 per cent reduction in greenhouse gas emissions by 2050. "Its message to our government should not be misread: we are united in our desire for swift, aggressive action on climate change," said Jonathon Lash, president of the World Resources Institute, a signatory of the report. In March, many of the same corporations, along with major institutional investors, again called on the U.S. Congress to enact strong climate-change legislation.

Still, even in the absence of clear policy direction from government, many companies have made significant headway in cutting their emissions and are plain-spoken about why they do it. "We think global warming is real and we think CO₂ management is vital," says Shell's Bancroft. "We don't believe it's sensible to go on the way we've been going." Shell Canada says that in its conventional oil and gas business, it's on pace to meet Kyoto targets by 2008, reducing its emissions to six per cent below 1990 levels. Oil sands, which are causing Canada's emissions to rise quickly, complicate the picture. But here too, big investments are being made in new technologies aimed at reducing the amount of water and natural gas used to mine the sticky tar sands. Shell, which is spending billions on oil sands development, says it will cut its emissions in the oil sands in half by 2010. A recent report by the Ethical Funds Company noted that three oil companies operating in Canada - BP, Talisman Energy and Canadian Natural Resources - have managed to reduce absolute emissions while also increasing production. Outside the oil patch, the electricity industry in Canada recently released a report stating that it could meet a 65 per cent absolute emissions reduction by 2050. The latest of many plans floated by the Canadian government now calls for a more modest 18 per cent reduction from 2006 levels by 2010.

Even in moving to cut emissions and calling for regulations, many of these companies might seem to be walking on very thin ice in proclaiming themselves friends of the environment. They are, after all, organizations responsible for significant amounts of emissions, energy use and waste. Energy companies are still producing a product that lies at the root of the climate-change conundrum (and many smaller oil companies have not been nearly as forward-looking as some of the bigger players). Critics have long called their corporate adoption of environmentalism "greenwashing" - a tool to win public favour. That description may have been true five or 10 years ago, but not anymore, says Wellington, the financial analyst. "These days we're seeing some of the more leading companies taking a fundamentally different view on these issues and looking at them in much more sophisticated terms." The short-term benefits from a marketing perspective are often just a happy side effect of this commitment, many argue. "I think consumers are wanting today and will want even more tomorrow to do business with corporations that are responsible," says Wal-Mart's Pilozzi. "If that's marketing, so be it. I think it's smart business."

Those who jumped on the bandwagon earliest stand to profit most. As many have already discovered, these days, green is the colour of money in more ways than one.

Maclean's May 14, 2007