Since President Obama’s November 2008 election victory, CRO Magazine publisher Jay Whitehead and Amit Chatterjee, CEO of environmental and energy management software company Hara, have agreed that the U.S. is moving quickly toward pricing a ton of CO2 emissions, creating an urgent need for a how-to-compete guide for corporate leaders.  So the pair collaborated on the first CO2-centric corporate competitive roadmap, The Post-Carbon Economy, the First Edition of which appears in August (SOFICO Books, www.postcarboneconomybook.com). 

To accelerate practitioner learning on this hot topic, CRO Magazine gives you an excerpt here. Disclosure 1: Co-author Whitehead is CRO’s publisher. Disclosure 2: Co-author Chatterjee is the Lunch Keynote at the CRO Summit Oct. 6-7 in Chicago, where he will reveal new findings in the war against carbon costs, and where attendees will receive a free copy of the book with their conference materials. Space constraints limit coverage of the co-authors’ Activity-Based Carbon Costing regime—for that you’ll have to get the book.   

Within the next decade, $1 trillion (with a “t”) in carbon emission-reduction costs will hit the U.S. economy. Your job is to figure out how to handle your share while continuing to compete in your market. 
Our goal with the first edition of The Post-Carbon Economy, is to prepare you to survive and thrive when these staggering costs rain down on your organization. Is $1 trillion in added costs manageable? It is when we consider two data points. First, the all-in cost of the cure for the 2008-2009 debt crisis is over $2 trillion. And despite incurring this cost burden, the American economy is still by far the world’s largest and strongest. Second, to allow global warming to continue unabated will mean environmental catastrophe, a result so devastating that not even $1 trillion will fix it.  

But the expense side of The Post-Carbon Economy is only one side of the ledger. On the upside, there will be many winners in The Post-Carbon Economy: Companies and individuals who make the trend their friend. Hopefully, that includes you. 

Our argument in The Post-Carbon Economy hinges on four interrelated observations. First, when carbon emissions costs are priced by the U.S. government, putting them on par with capital and energy and labor costs, the economics of our businesses and lives are changed forever, and our economy goes post-carbon. 
Second, your ability to compete in The Post-Carbon Economy will largely hinge on how carbon efficient you are. Third, your best hope to find your way to carbon efficiency is to switch from a traditional allocation-based costing regime to activity-based costing with a focus on carbon—what we call Activity Based Carbon Costing or ABCC. And fourth, since you already manage your business by processes, the best way for you to manage to compete on carbon efficiency is by managing each of your seven major business processes most carbon efficiently. 

Here is The Post-Carbon Economy in one sentence: Once carbon is priced, your carbon efficiency will determine your competitiveness, ABCC will be your secret weapon, and a business process orientation will keep you managing to your optimal carbon competitive advantage.The primary assertion of The Post-Carbon Economy is that by putting a firm price on a ton of CO2e emissions, the economics of virtually every product and service changes. For example, our back-of-the-envelope calculation shows that at the arbitrary price of $50 per ton of CO2e, the producer cost of a bottle of $6 retail-priced liquid detergent jumps by about 12 cents. That may not seem like much to you. But when the producer cost for the bottle is $2, that’s a 6 percent hike in production costs. Not trivial.

While at press time we do not know what price the U.S. government will set on a ton of carbon, we can make certain assumptions based on strong research. It is a fact that energy expenses in most manufacturing and service industries run about 2 percent of total costs. With each incremental $10 per ton of CO2e of costs, total production costs for manufacturers rise by between 1.0 percent and 2.5 percent for each incremental per-ton charge of $10. In some cases, that effectively doubles the cost of the company’s energy. For service businesses, the total cost increases are less, 0.5 percent to 1.0 percent. Yet there are some wild exceptions, including cement makers, who suffer a steep 13 percent increase for each $10/ton. We do know that the U.S. government’s proposed cap-and-trade programs will involve free allowances of some portion of companies’ carbon caps.

Resources for the Future calculations show that free allowances of about 15 percent of a firm’s emissions from fossil fuel and electricity use will be sufficient to avoid adverse impacts on shareholder value.
While The Post-Carbon Economy involves a significant layer of additional costs, the principles we outline here open the door to sustainable economic growth for your business. What is more, in The Post-Carbon Economy, we outline an approach that will allow American entrepreneurs to lead a renaissance in manufacturing, technology, transportation, food and energy, building both middle-class wealth and a new
generation of U.S. millionaires and billionaires.

In The Post-Carbon Economy, markets are de-carbonized, de-globalized, re-localized, reforested, un-deforested, reregulated, and carbon is sequestered, offset and capped-and-traded. In The Post-Carbon Economy, including carbon costs in our accounting systems and in how we use human resources and deliver employer-sponsored healthcare results in re-employment and career changes for millions. Education systems are re-invented to meet new demands. And the American consumer lifestyle leads the world in a rapid transformation from carbon-intensive, long distance transportation-dependent, disposable and high-emission to de-carbonized, re-localized, durable, reuseable, renewable, and low-emission. 

Those who deny the premises of The Post-Carbon Economy risk a carbon-heated global climate that dooms America’s companies, currency, culture, and citizens to unsustainable shortages of resources, resulting in an inability to compete with stronger post-carbon businesses in France or Brazil or Denmark or China.  Free-falling stocks of food, fish, and fossil fuels result in conflict involving countless American and international casualties. And our children and grandchildren in the U.S. and around the world will face recession-filled lifetimes that are, like in the days when American slave owners ignored the costs of that abhorrent and unsustainable practice, nasty, brutish, and short.  

          
To all post-carbon skeptics, we say The Post-Carbon Economy is undeniable, a fait accompli. In the U.S., a carbon cap-and-trade regime is on its way to being a permanent fixture on the scene. Elsewhere, mandatory emission limits, sequestration and carbon taxes are as certain. We know from experience that without seeing a competitive advantage in it, the vast majority of business people will ignore any calls to pay the environment any heed. We have discovered that activity-based carbon cost accounting, or ABCC, is the most powerful weapon yet deployed to mobilize business leaders and rank-and-file businesspeople to find profits and competitive advantage while having a real impact on GHG-based global warming. And importantly, many businesses have started down the post-carbon path, by including the impact of carbon remediation costs into their stock prices, products, services, and business processes. 

It strikes us that our children will never know business life before The Post-Carbon Economy.   Our offspring are much more aware than we are that with only 4.6 percent of the world’s population the U.S. uses 22 percent of its energy. To our kids, we say this: We cannot undo the carbon-blindness of the past, but we are doing what we can to leave the place livable for you.

You have the opportunity to contribute to The Post-Carbon Economy second edition, to be released by a major publishing house and including a vast expansion of Chapter 8—Secret 5’s 7 Key Business Processes that Determine Winners and Losers in The Post-Carbon Economy. To contribute, go to the book’s official Website, www.postcarboneconomybook.com, to add your experiences. If we select your online contribution and you will allow us to use it with attribution, we will list you in the second edition as a Contributor.   

What Historical Forces Created The Post-Carbon Economy?
We wrote this book out of recession-fatigue. The generation bracketed by our birthdays (Jay Whitehead 1959, Amit Chatterjee 1972) has suffered through four major financial collapses—the Mideast oil crisis of 1977, 1987’s Black Monday crash, the 2000 Dot Com Collapse, and the Debt Crisis of 2008-2009. 

Four recessions is more than any American generation has ever weathered. These recessions weigh on us. That, plus the fact we are both fathers who have confidence in our abilities to help keep the drumbeat of recurring recessions from crushing our American childrens’ quality of life. 

We believe that The Post-Carbon Economy holds a key to US economic recession resistance. In one fell swoop, creating The Post-Carbon Economy remediates climate change, cuts our destabilizing dependence on oil and gas produced by America’s enemies, and blazes a wide trail for endless American commercial innovation. The Post-Carbon Economy is the next mega-trend. It is also a cure to our recession-fatigue.
Predictably, the next mega-trend gets a lot of its power from our economy’s over-reliance on the last economic mega-trend: outsourcing.

Post-Carbon Is The New “Flat.”
In Thomas Friedman’s 2005 best-seller The World Is Flat, A Short History of the Twenty-First Century, he documented a significant, if momentary business trend. In the “flat” world view, unless companies outsourced “non-core” high labor-cost processes to low labor-cost locations, they became uncompetitive. Bottom line, in the “flat” world, winners looked for low labor costs offshore, losers stayed expensive and local. 
Now fast-forward from the “flat” world to The Post-Carbon Economy. In The Post-Carbon Economy, winners sport the lowest combined net cost of labor AND carbon emissions. Fact is, starting now, governments from the U.S. to Canada to the UK to EU to China are and will be imposing costs on companies’ carbon emission levels, in the form of taxes (example: the Canadian province of British Columbia) or mandatory emissions limits or carbon sequestration (example: certain regions in China) or carbon emission “cap-and-trade” regimes (examples: UK, EU and coming soon, the U.S.). Just as lower labor costs defined winners in
Friedman’s “flat” world, low carbon costs define winners in The Post-Carbon Economy. 

Historical and Economic Forces Converge to Create The Post-Carbon Economy
While this book is not about the 2008-2009 debt crisis, we cover it for one reason: The economic restructuring of 2009 enabled the emergence of The Post-Carbon Economy. The U.S. government’s success in its aggressive response to the 2008-2009 debt crisis gave it license to continue being aggressive in its
approach to carbon regulation. In his nearly $2 trillion in economic stimulus programs, President Obama earmarked nearly 10 percent for clean energy-related investments. In addition, the president created new taxes on offshore outsourcing, which had the effect of further un-flattening the world and spurring
de-globalization and re-localization of labor markets. Flying the flag of economic recovery, the early Obama administration set the record straight that green was the new “flat.”

We see The Post-Carbon Economy as the result of several recent historic threads. Globalization and the rise of America’s service economy made the world wealthier; populations grew, fossil fuel use increased, CO2 emissions rose, climates started changing from the greenhouse effect and the economic landscape was forever altered. Financial engineering accelerated the growth of the service economy, creating a debt bubble that burst tragically in 2008, forcing governments from the U.S. to the UK to Germany to Belgium to Japan to China to step in to save financial markets. The economic crash accelerated U.S. private sector and public sector structural change away from a no-carbon-cost economic model to a more balanced post-carbon model. In the service-dominated economy of the 1990s, carbon emissions and waste represented virtually zero cost and therefore, carbon and waste efficiency gave proponents no competitive advantage.

In The Post-Carbon Economy, nonproductive outputs such as GHG emissions and waste are associated with significant costs, and regardless of labor cost advantages, wasteful CO2 practices result in a competitive disadvantage. We call this condition an imbalance in an organization’s metabolism. Because in The Post-Carbon Economy these nonproductive outputs actually do represent waste and involve significant costs, organizational sustainability means accounting for the nonproductive output costs and managing to reduce them. 

By summer, 2009, The Post-Carbon Economy was already taking shape. The 2008-2009 debt crisis caused some hard-pressed companies to make post-carbon alterations—cut business travel, cut high-carbon energy generation plants for lack of capital market support, and re-engineer processes for minimum waste. For the rest, governmental regulatory response to climate change made structural change inevitable.  And just as the U.S. government’s debt-crisis reregulation of financial markets changed the cost of financing everything, new government-imposed costs on carbon emissions will impact the cost of nearly all products and services. The Post-Carbon Economy will change your company, country, and career in ways happy and harsh. Yet the more you understand it, the more you can turn your understanding of The Post-Carbon Economy into your own
personal recession-avoidance strategy. Getting ahead of the carbon curve will be, for many, the biggest business opportunity of all time.