Personal Mobility and Sustainability Leadership

Sustainability leadership is not fundamentally different from ‘good’ leadership. In the personal sustainable mobility sphere, Carlos Goshn, the CEO of the Renault-Nissan Alliance is a good example. I met Carlos during a Foundation Board meeting while at the World Economic Forum. Following a roundtable discussion on the China and the World Scenarios to 2025, he asked me whether scenarios could be used to drive business strategy and whether I would be interested in helping to facilitate that process. His reputation was one of being a diminutive megalomaniac and a hatchet man, not the characteristics one would find in a good leader. I discovered a very different leader.

In this post, I provide five leadership characteristics, which good leaders tend to embrace[1]. In my view, Mr Goshn has them all. Here is why:

  1. Are able to find a common purpose

The role of leadership in a flatter, less hierarchical, more interdependent world is to find a common purpose. It is easy to formulate and share a vision among people who share the same culture, identity, skills and have a similar background, and in a business that is insulated from the external environment. Good leaders are therefore able to find a common purpose which is specific to provide direction, and which is vague enough to allow initiative. Upon arrival at Renault he created a culture of performance, excellence and sustainability at Renault and later at Nissan.

  1. Are able to manage across borders and across boundaries

Good leaders are able to manage across borders (people in different countries have different values, cultures and practices and this requires a level of international understanding) and to manage across boundaries (influence situations in organizations where leaders are not in control). As a French-Lebanese-Brazilian businessman, he has worked successfully across different cultures. Geert Hostede’s cultural compass[2] shows that cultures and behaviours are quite different between Brazil, France and Japan. Japan stands out because of its long-term orientation and high degree of masculinity.

  1. Are more nimble

Good leaders have to be more nimble because they tend to have much less control in the present than they had in the past. This for three reasons: 1) the challenges they face are complex and changing, 2) constituents are rarely willing to just execute, and 3) technology allows information to spread across the world instantaneously. Ghosn believes in the use of cross-functional teams. To turn Nissan around, he mobilised 9 cross-functional teams, of 10 people each. He also delayered the organisation to make them more agile and allow ideas to emerge from the entire organisation, not just from top management.

  1. Are able to deal with uncertainty

Good leadership is about dealing with uncertainty. Two characteristics stand out here: 1) having the courage to inspire courage in others to deal with uncertainty, not fearfully but hopefully, and 2) imagining new ways to use resources and turn them into the capacity to effectively compete. Ghosn is a captain of industry. He has a vision of where the industry is going, yet is flexible to fine-tune the execution of the company’s strategy based on new information becoming available. Without his ability to deal with uncertainty Renault’s entry in electric vehicles would simply not have happened.

  1. Are able to build connections between various stakeholders

Good leaders have the ability to build connections between various stakeholders (business, governments, NGOs, etc.) to commonly address the challenges faced. As a result, good leaders are able to engage with people in a way that is reciprocal. Ghosn is an excellent communicator, understands the automotive industry, and is very accessible to a diverse group of stakeholders. His ability to listen and address a question or comment and to engage a diverse group of stakeholders is remarkable.

In 2008, he received the transcultural leadership award from INSEAD because of his ability to manage across cultures and for turning around Nissan, the Japanese car company[3].

In summary

He wouldn’t refer to himself as sustainability leader, but is probably the automotive industry’s most prolific sustainability leader. He turned Nissan around from a profit perspective. He launched a full line of electric cars at Renault and the Nissan Leaf at Nissan. The company is a partner of the Allen MacArthur Foundation and was one of the early adopters of circular economy concepts. At its Choosy-le-Roi factory, Renault remanufactures and reconditions various automobile parts, including injection pumps, gearboxes, injectors, and turbo compressors, and has turned this into a profitable venture. In 2008, INSEAD awarded him the transcultural leadership award. Good leaders don’t just focus on shareholder value or the short term, but are able to manage across borders, consider the long term, and take into account the triple bottom line. I guess that’s what makes them sustainability leaders.

[1] https://hbr.org/2010/09/the-role-of-tomorrows-leaders.html

[2] http://geert-hofstede.com

[3] https://www.youtube.com/watch?v=SF3W2vCH9dU

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Sustainable Consumption & Behavioural Change

In previous posts, it was argued that personal mobility remains unsustainable and that the regulator has an important role to play. In this post, we will explore some of the factors that continue to contribute to unsustainable consumption when considering personal mobility and why it is so difficult to change people’s consumption behaviour. We will look at it through the lens of disinformation (by companies), lack of fundamental understanding (by the consumer), and ineffective policies (by the regulator). We will use Tesla as an example where all three dimensions of unsustainable consumption are stimulated.

Disinformation by the company (Tesla). Tesla is the unquestionable master of being a spin-doctor, who tries to control the way something is described to the public in order to influence what people think about it. Most people now believe that Tesla’s products are based on disruptive innovation and that they are much more sustainable forms of personal mobility compared to the average sedan, minivan or SUV. While it is true that no CO2 emissions are coming out of the tailpipe of a Model S (there is no tailpipe to begin with), they forget to highlight the fact that electricity is not a primary energy form and that electricity needs to be generated and stored for future consumption. Most of the electricity around the world is generated from fossil fuels, and several of Tesla’s supercharger stations have diesel-powered backup generators, which are considered among the worst ways to generate electricity from an efficiency and environmental point of view. Recent articles in both the Harvard Business Review and MIT Technology Review conclude, based on Clayton Christensen’s theory of disruptive innovation, that Tesla’s cars are not really disruptive.

There are two additional fundamental sustainability challenges when considering any of the Tesla electric cars: 1) the use of lithium for the production of batteries. Lithium needs to be mined and processed for use in batteries. Lithium is flammable and highly reactive and has been linked by the Environmental Protection Agency (EPA) to cancer and neurological problems. In addition, according to the Guardian, the mining and production is an energy intensive and soil polluting activity, and 2) all Teslas have an aluminium body and chassis to reduce weight. Unfortunately, smelting aluminium requires almost 10 times the energy to smelt steel. A 2012 article in the Journal of Industrial Ecology concludes that when all these factors are incorporated, the environmental footprint – over the entire lifecycle of the Tesla Model S – is higher than that of most large American SUVs. Nobody at Tesla will ever tell you this. And ultimately, misinformation by companies of course affects the (mis)understanding of consumers and is reflected in consumer behaviour.

Porsche, on the other hand, is launching a full-electric sports car (which outperforms any Tesla on all dimensions), which has a carbon-fibre body (which has a significantly lower environmental footprint compared to aluminium) and is largely 3D printed (which is a more energy efficient production process and generates far less waste in the process) and uses a different type of battery (which is only 20% of the weight of the battery used in Tesla Model S). Not truly a surprise given that Porsche has the know-how and expertise to design and build remarkable sports cars.

Lack of fundamental understanding by the consumer. I have two very smart Ivy League educated friends who fundamentally believe that cold fusion will solve all our energy problems and that home battery packs will make consumers independent from being grid connected. Cold fusion, a nuclear reaction at room temperature, is theoretically not possible. Nuclear fusion is a nuclear reaction in which two or more atomic nuclei form a new nucleus, and is the same process that happens in stars, including the sun at a temperature of 14 million degrees Kelvin. This is the kind of thing that National Geographic suggests ‘not to try at home’. Also, home battery packs have not been designed to be off-grid. While theoretically feasible, it is practical nonsense. The objective of distributed power generation and storage is that everybody in the community becomes an energy producer and consumer and that the role of the grid is to balance loads.

The media tends to play a very misleading role when it pertains to potential new technologies because they are often overhyped and not fact tested. Even for the well-educated person, it is not easy to make the distinction between fact and fiction.

Ineffective policies by the regulator. In my previous blogs, I have highlighted some effective policies to stimulate more sustainable consumption and behaviour. At times, however, the regulator gets it completely wrong. Subsidies, whether these are grants or tax concessions, are very often poorly designed and lead to unsustainable behaviour. Germany and Belgium made excessive use of feed-in tariffs to stimulate the uptake of rooftop solar PV. These feed-in tariffs and the resulting short payback period, led to unsustainable consumption. The World Energy Council ranks Belgium 41st and Germany 44th out of 130 countries in terms of the environmental sustainability of energy systems. This makes Germany the least environmental sustainable country in the OECD, while also having one of the most expensive energy consumer prices in the world. There are several reasons for this: 1) both Belgium and Germany are bad locations for solar power because of low solar irradiation, 2) the supply variability of solar power, i.e., it is not possible to ramp alternative power plants as fast as solar swings up and down every, and 3) it displaces the wrong type of power, such as nuclear.

Regulators are now doing the same for electric vehicles – providing financial incentives for people to buy and drive environmentally-unfriendly cars. City- states, such as Singapore and Hong Kong, may improve local air quality by letting people purchase electric vehicles without tax, but they in fact dramatically negatively affect the environmental footprint in other parts of the world where the raw materials are mined and processed, and where the cars are decommissioned and parts are recycled. As a consumer, I would be inclined to benefit from the tax concessions provided by the regulator, but from a life-cycle perspective they are unsustainable. But regulations change and in California they are currently revisiting regulation and take into account some of the externalities.

There is also some concern that regulatory policies (and thus, Tesla) are helping fuel inequality. Tax credits for electric vehicles fuel inequality because the benefits are only available to the upper middle class. In the US, a Tesla Model S can earn the buyer a $7,500 tax credit depending on the battery pack size. Given the high purchase price, only wealthier Americans benefit from this tax credit, while the average American, who cannot afford a $75,000+ car, does not benefit from a tax credit. The same applies in other countries where feed-in tariffs only apply to expensive and not very sustainable electric vehicles.

If we could improve these three dimensions – disinformation by companies, lack of understanding by the consumer, and effective policies by the regulator – consumption would become substantially more sustainable because it would change consumer behaviour.

Regulatory factors in Europe, the US, and China – PART 2

In the previous post, vehicle emission standards in Europe, the US, and China and how they evolved were explored. Given population rise and the estimated growth in passenger cars, emission standards alone will not allow humanity to reduce CO2 emissions to sustainable levels. In this post, we will explore a variety of other regulatory factors in place in Europe, the US, and China to reduce pollution from passenger cars and light commercial vehicles. These include fuel prices, taxation on cars, and congestion charges. Contrasting fuel prices is easier than other regulatory levers, such as taxation on cars and congestion charges:

  • Fuel prices: Apart from countries where fuel prices are subsidised, such as Saudi Arabia and Venezuela, the United States has by far the lowest fuel prices in the OECD. The figure from The Economist below contrasts fuel prices in selected European countries and the US, and while the actual fuel cost (production, refining, distribution and retail) is, apart from Japan and Canada, roughly the same, the major difference is taxes and duties. Easy rides
  • Following the 1973 and 1979 oil price crises, European drivers started buying smaller, more fuel-efficient cars, and the Japanese car manufacturers started making major inroads in Europe, and were considered the most fuel-efficient cars until about the turn of the century. European car manufacturers have since made a significant comeback with even the luxury brands offering, so-called ‘citadines’ and a spectrum of full electric, hybrid, and efficient ICE powered cars. It is also interesting to note that China has fuel prices that are similar in comparison to Europe (http://www.bloomberg.com/visual-data/gas-prices).
  • Taxation: Road tax is an annual tax that is levied on cars that are matriculated. In most countries, this tax is linked to the fuel efficiency of the car. Many European countries also have a circulation tax, a one-off payment when the car is purchased. Again, the circulation tax is linked to the efficiency of the engine. For example, the circulation tax on a Maserati Quattroporte (Julian J) could easily exceed EURO 5,000 depending on the country, while a BMW i3 or a Tesla, would be exempt from circulation taxes in many European countries. Another interesting taxation issue in Europe is that very efficient cars, such as electric vehicles, could be amortised at 120% of the purchase price, when purchased in a company. In the US, the annual registration fee, which varies from state to state, is typically substantially below European road taxes. In 2011, China adopted an annual road tax to promote energy conservation. While road taxes existed before, they where significantly increased and today vary between USD 10 and 900 depending on the engine size.
  • Congestion charges: Congestion charges are currently only applied in certain cities – London, Milan, Singapore, and Stockholm – to regulate congestion in cities. Congestion is considered to be a negative externality and a congestion charge makes users conscious of these externalities. At least in theory.

Some people may not appreciate the role of the regulator in making personal mobility clean, but the facts are clear. Cars in Europe are far cleaner, much more advanced technology wise, and much more practical in daily use. They are even faster and safer than their US counterparts. Smart regulation (in close partnership with industry) has provided the incentives for the European automotive industry to emerge from the ashes and be at the forefront of innovation and sustainability.

Regulatory Factors in Europe, the US, and China – PART 1

There are a variety of regulatory factors in place in Europe, the US, and China to reduce pollution from passenger cars and light commercial vehicles. Although there are nine countries/regions that have emission regulations in place – Brazil, Canada, China, the European Union, India, Japan, South Korea, Mexico, and the United States, in this blog, we will explore vehicle emission standards and how they have evolved for the three largest vehicle fleet countries.

Contrasting emission standards is not easy because countries have adopted different approaches and have also set standards in different ways. Let’s explore these by country one by one:

  • The United States: Vehicle fuel economy has been regulated in the US through the US Environmental Protection Agency (EPA) and the National Highway Traffic and Safety Administration (NHTSA) since the mid-1970s and is commonly referred to as the CAFE (Corporate Average Fuel Economy) Standards. CAFE Standards set fuel economy standards for the US and are expressed in terms of miles per gallon (mpg) and have been remarkably flat at 27.5 mpg for about 30 years. Only the state of California set CO2 standards, which it started in 2009. While the CAFE Standards have not evolved over the years, vehicles have become more fuel efficient from about 28.5 mpg to about 36 mpg today. Technology is largely credited for improved fuel efficiency and not regulation in the US.
  • The European Union: A single unified emissions standard in the European Union, only came into effect in 1995 and is regulated by the European Commission. From initially voluntary CO2 tailpipe emission reduction agreements with the European Car Manufacturing Association (ACEA), the European Commission has since 2009 moved to a mandatory fleet-average CO2 emissions target of 130gCO2/km by 2015 and 95 gCO2/km by 2020 (see figure below) Currently, average CO2 emissions stand at about 125gCO2/km or about 5l/100km or about 47 mpg (or 11 mpg better than the average US vehicle).

EU fuel consumption

  • China: Since 2004, China has implemented a phased approach to fuel consumption standards (not emission standards like in the EU) regulated by the China Automotive Technology and Research Center (CATARC). Phase IV fuel consumption vehicle consumption standards are currently under development with the objective to have an average fleet consumption by 2020 of 5l/100 km or about 47 mpg (the current EU level).

Emission/consumption standards are not the only way to reduce CO2 emissions of vehicles, but the European and Chinese examples illustrate that they can effective tools to reduce CO2 emissions. Approaches differ widely with both the US and China setting consumption targets, while the EU focuses on CO2 targets.

In the next post we will explore other regulatory factors, such as taxation of cars, congestion charges, and fuel prices in Europe, the US, and China and how they developed over the years.

(Current) Unsustainability of Personal Mobility

As mentioned in my previous post, the International Energy Agency (IEA) estimates that at the end of 2010 the numbers of cars on the planet surpassed 1 billion. Although it varies from country to country, globally about 15% of CO2 emissions come from transportation. While this includes other modes of transportation, cars are an important contributor to global climate change.

Currently, personal mobility is highly unsustainable for the following reasons: 1) almost total dependence on fossil fuels, 2) inefficiency of internal combustion engines, and 3) continued demand growth for cars. Let’s explore these one by one:

  • Almost total dependence on fossil fuels: Although hybrid cars and electric vehicles are becoming more widespread, fossil fuels dominate globally. Diesel cars consume less fuel than gasoline cars, thus emitting less CO2, but they tend to emit much more fine particulates which even the most efficient particulate filters fail to eliminate. Fossil fuels are also a finite resource. While there is plenty left, it is one of the few natural resources which cannot be recycled. Once it is burned inside the ICE engine, it is gone. Platinum and other precious metals, on the other hand, are recycled to a high degree. The development of biofuels tried to change our dependence on fossil fuels, but has so-far not been successful in reducing our addiction to fossil fuels. 1st generation biofuels compete with the food crop and 2nd generation (ligno-cellulosic) and 3rd generation (algae-based) biofuels are currently in pilot stage. Full electric cars, although in early stage of adoption (0.07% of the global car fleet), show tremendous promise, especially when the electricity would be derived from renewable energy sources, such as hydropower, solar and wind. The same holds for fuel cell powered cars.
  • Inefficiency of the internal combustion engine: The internal combustion engine (ICE) is highly inefficient. ICE engines generate a lot of heat and this heat cannot easily be recovered without adding lots of weight to the car. Although it varies from country to country, about 75% of the energy in an average US car is lost through the exhaust. The remaining 25% is used as follows: 8% mechanical losses (wheel bearings, etc.), 15% to move the car, and 2% to move the average. In Europe and Japan, it is slightly better because of the use of smaller engines, but the challenge of heat losses is difficult to address in traditional ICE engines. The hybrid drive, commercialised on a large scale by Toyota, now dramatically improves the efficiency of ICE engines due to energy recovery from braking and deceleration.
  • Continued demand growth for cars: Some experts expect cars to reach 2 billion by 2035. In my previous post, I challenged that projection because of changes in technology and ownership models. In Europe and Japan, car ownership is slowing and in some instances declining. According to the Boston Consulting Group, young people (18-29 year old) buy fewer cars in countries such as Germany compared to young people a decade ago. William Clay Ford, Jr, the grandson of the founder of Ford Motor Company famously said: “If you live in a city you don’t need to own a car”. Nevertheless, it is expected that globally, the demand for cars will continue to grow, especially the demand for traditional ICE powered cars, although hybrid cars and full electric cars are gaining momentum.

In the next post we will explore regulatory factors in Europe, the US, and China and how they developed over the years.

A Trend is a Trend until it Bends

Thank you for your comments on my previous post on ‘Personal mobility – A sustainability journey’. A key driver of sustainability (or unsustainability) will be the number of cars worldwide. As mentioned in the previous post, the International Energy Agency and OECD estimate that at the end of 2010 the number of cars on the planet surpassed 1 billion, and that by 2035 this number could double. Daniel Sperling and Deborah Gordon in their book Two Billion Cars: Driving Toward Sustainability make the same claim.

How can they be so certain? As a strategic foresight ‘pracademic’ my motto is ‘A Trend is a Trend until it Bends’ or, in other words, I am always on the outlook for discontinuities – social, technological, economic, environmental, and political.

In its 2001 Global Energy Scenarios, Shell introduced the ‘energy ladder’ concept and demonstrated, based on observations over 30 years in dozens of both emerging and developed economies, that a non-linear relationship (an S-curve type of relationship) exists between primary energy demand and disposable income per person (in constant purchasing power parity terms):

  • At $3,000 energy demand increases rapidly driven by industrialisation and urbanisation and the shift from biomass to commercial fuels.
  • At $10,000 energy demand continues to rise but at a slower pace as industrialisation and urbanisation matures.
  • At $15,000 energy demand growth slows dramatically driven by economic growth from services.
  • At $25,000 energy demand does not change much anymore because of efficiency and the fact that the energy needs of industry and households have been met.

Can we not make a similar S-curve observation in terms of demand for cars? In the emerging markets of India and China, demand growth for cars continues to rise, while in OECD countries demand growth for cars has stalled — in fact in some developed economies it is declining.

There may be another set of phenomena, such as ‘leap-frogging technologies’ and ‘change in behaviour’, which could imply that even historically S-curves are not a good predictor of the future, making linear predictions even less reliable. The Internet and changing human resources policies allow people to work from home part of the weak, requiring less use of cars. In crowed cities with good public transportation systems, people tend to shy away from cars or have only one car per household instead of two.

While it is likely that the number of cars will increase, I doubt that we will see 2 billion cars by 2035.

In the next post we will explore the unsustainability of personal mobility.

Personal mobility – A sustainability journey

Most people will think ‘cars’ when reading this blog’s headline, but there are many other forms of personal transportation. In the Netherlands, many people use bicycles to go to work. In neighbouring Belgium, people will think twice before considering riding a bicycle inside a city, because of a lack of bicycle paths and because Belgian car drivers are not accustomed to sharing the road with cyclists. Italians, and especially those in crowed cities, love their Vespas because public transportation is not well organized, fuel costs are high, and the climate is favourable. In the United States, people don’t mind driving long distances and in some cities, such as Denver and Houston, it is almost impossible to go from one place to another without a car. In general in the US, cars and fuel are more affordable than in Europe or Japan. In some Chinese cities, such as Beijing, people think twice before using bicycles because of health reasons. This is despite the fact that China used to be known as the “bicycle capital of the world” and had put car restriction policies in place to control congestion and smog. Personal mobility modes and choices vary greatly between countries and within countries.

Over the next 2 years or so, this blog will focus on drivers of sustainable personal mobility, including:

  1. Projections of cars worldwide: According to International Energy Agency (iea.org), an OECD organisation, by the end of 2010 the number of cars in use surpassed 1 billion. By 2035 this number could double. What drives car ownership? Population growth, urbanization, and economic growth are all factors that contribute to increased levels of the number of cars.
  2. Unsustainability of personal mobility: In its 2007 report, the IPCC estimates that transportation contributes to about 13% of CO2 emissions. While this includes public transportation, shipping and heavy trucks, it is a significant contributor to climate change.
  3. Regulatory factors: such as EURO norms and CAFE standards, taxation of cars, toll roads, congestion charges, fuel prices and their implications.
  4. Technology and efficiency: the evolution of ICE cars, hybrid cars, and electric vehicles, driverless cars, new forms of personal mobility, e.g., Toyota i-Road microcar, battery storage, fuel cells, electric vehicle charging, etc.
  5. Social trends: different ownership models including leasing, bicycle sharing (Vélib, petit Vélib) and car sharing (Zipcar, Car2Go, Uber) schemes. Personal mobility sharing schemes are growing exponentially, especially bike sharing. See map (www.bikesharingworld.com).

These are some of the dimensions that we will be exploring in this blog. Anything major missing? Let me know.