IQ

What's in Store
for 2013?

Editorial Staff



Download the PDF here

The Political Issue

Read the issue online:



IQ: Political Issue

The Editorial Staff


The Corporate
Citizenship Issue


Read the printed issue online:



Download a PDF of the
printed issue here


The Editorial Staff


The Creative Issue

Read the printed issue online:


Download a PDF of the
printed issue here

The Editorial Staff


The Digital Issue

Read the printed issue online:

Download a PDF of the
printed issue here

The Editorial Staff

Energy

By Tom Zara

Energy

Russia’s plans to drill in the North Pole, an estimated 90-year reservoir of natural gas in North America, the likely approval of the Keystone pipeline and continuing instability in the Middle East all point in one regrettable direction: When it comes to energy, we are, rather illogically, embracing the status quo.

THE GRAND GREEN BARGAIN AND BEYOND
While it was once true that energy was cheap and abundant, that is no longer the case: prices are soaring, supply is dwindling—and demand is rising. Until very recently, the mature industrial powers of Europe, Asia, and North America consumed the lion's share of energy and left the dregs for the developing world. However, if current trends persist, the strong economic growth of rapidly industrializing nations like China, India, Brazil, Indonesia, Malaysia, Thailand and Turkey, could drive the developing world’s share of energy use to 47 percent by 2030. The Chinese alone are projected to consume 20 percent of world energy by 2025—by which time, it will have overtaken the United States as the world's leading energy consumer. What will happen when the rising economic dynamos have to compete with the mature economic powers for untapped reserves of exportable energy? Anyone who has expertise in geopolitics could tell you, it won’t be a pretty picture—or lead to security, stability or prosperity for any but a few.

On top of the scarcity issue, the past year has brought extreme weather events that have put the climate change discussion back on the table. From Super Storm Sandy and record droughts in the United States to unusually heavy rainfall in Pakistan and temperatures so hot in Australia a new color had to be added to their heat index, the very real impacts of a changing climate are swiftly shifting public perception and awareness. Instead of asking whether climate change is happening, questions about the costs of inaction and what can be done are now being asked. This is a critical moment for enlightened leadership to begin a new conversation about the cost of carbon as well as solutions that might avert the worst effects of climate change and ensure a future that will allow the greatest number of people to have a cleaner, more stable and secure energy future.

While the exact solutions to our energy dilemma are not yet clear, what is clear is that now is the time for innovation, invention and disruptive thinking to reshape the landscape of energy policy and behavior, across nations and economies.

WHERE WE ARE NOW
According to the U.S. Department of Energy, fossilfuels–oil, coal, and natural gas— supply about 86 percent of world energy, while nuclear power provides another 6 percent. Based on current rates of development and investment, the DoE projects that by 2030, fossil fuels will still account for exactly the same share of world energy as in 2004, with a slight increase in renewables and biofuels. Of course, this is good news for those who have a vested interest in fossilfuels. Both crude oil and natural gas production are expected to increase in 2013, with the U.S. becoming a chief exporter of coal and natural gas. There are reserves enough to keep supply and revenue up for decades—but can this trajectory be sustained?


"There is currently a disconnect between what energy companies say and what they do—and that gap must be bridged through real efforts to adopt environmentally sensitive practices, clean up accidents if they occur, address health impacts, and make real commitments to renewable energy."



THE CURRENT PICTURE
Oil: Global oil supply has increased modestly, with production highest in Saudi Arabia, Canada, Iran and Iraq. U.S. production is up for the first time in decades. Oil prices will almost certainly remain high due to limited increases in supply, but gains are expected in the next few years. On the upside, this will help meet the rising demand in developing nations where many are expected to join the ranks of the middle class and buy their first vehicles—and energy brands will reap the benefit. The problem? Beyond potential oil spills and pollution from the refining process, the use of oil adds more carbon dioxide to our atmosphere and contributes to global warming. Further, the pressure to increase supply of the world’s fuel of choice has pushed brands to explore the last pools of crude oil—including in sensitive regions.

Is it worth the risk to drill in the Arctic, for instance? Shell is currently testing the waters. The latest in a series of troubling incidents ranging from an oil spill containment system failing to ongoing investigations of safety and pollution control problems: on December 31, 2012, Shell’s oil drilling rig, Kulluk—with 150,000 gallons of fuel on board—broke loose from a tow vessel during a major storm and was grounded off the coast of Alaska. With consumer (and investor) trust at stake, brands like Shell that have built strong reputations do not want to risk going the way of BP—whose Deepwater Horizon debacle prompted hundreds of lawsuits, killed 11 workers, sent millions of barrels of crude leaking into the Gulf of Mexico and did devastating damage to BP’s brand. On top of that, the company was slapped with the largest criminal penalty in U.S. history, amounting to billions of dollars. Surely, a cautionary example for all in the sector.

Nuclear: The 2011 meltdown at Fukushima sent shockwaves throughout the world and, as a direct result, Japan shut down 50 reactors and Germany pledged to close all of its reactors by 2022, opting instead for new investments in renewables, particularly solar. Despite the soured sentiment around nuclear, world nuclear capacity is expected to grow, particularly in China, India, Russia and North Korea. Though a “clean” choice in terms of carbon emissions, the risk of nuclear meltdown, the insoluble problem of nuclear waste and the controversy over uranium—a top conflict mineral—will ensure nuclear energy will remain a problematic option going forward, as the growing anti-nuclear movement will attest.

Coal: A huge contributor to greenhouse gases, “clean coal” technologies will probably extend the life of the industry. However, rising reliance on coal (especially in China, India, and the United States) means that global emissions of carbon dioxide are projected to rise by 59 percent over the next quarter-century, from 26.9 billion metric tons to 42.9 billion tons. The meaning of this is simple. If these figures hold, there is no hope of averting the worst effects of climate change.

That said, a gradual decline in coal use is expected as more plants shut down, regulations on pollution tighten and natural gas gains ascendency. Already some electric plants have switched from coal to natural gas, which has become, in many people’s minds, the answer to our energy dilemma—at least in the short term.

Natural Gas: In North America, new discoveries and innovative drilling techniques have led to a vast oversupply of natural gas—which is increasing faster than demand, driving down prices dramatically (50 times cheaper than oil, at today’s depressed prices). Electrical utilities and trucking companies, among others, are already switching from coal or diesel to natural gas and, if it stays cheap, more industries are bound to follow. If the free market, rather than thoughtful analysis of the energy landscape and future trends, is to determine the answer to our energy problems, then natural gas is the clear winner. The problem? Fracking.

While industry sector reports have downplayed the risks of hydraulic fracturing, scientists—and consumers—are not convinced of its safety. Further, the impact of documentaries like Gasland and now, Hollywood’s hard-hitting take on the subject, Promised Land, continue to sow doubt. The “grand green bargain” as New York Times columnist, Tom Friedman has referred to the natural gas compromise, will have to be made, but brands that want to lead will have to imagine a world beyond it.

TOWARD A NEW VISION
Realistically, oil will remain our collective fuel of choice for quite some time, coal will most likely decline, and natural gas will most certainly help the transition to a cleaner energy future, but there is no denying that a sense of discomfort with current energy choices is growing. In general, consumers have low confidence and satisfaction with energy brands because of rising energy costs and a justified perception of irresponsible actions regarding the environment. These negative perceptions tend to undermine a brand’s efforts to secure a more meaningful relationship with its customers. There is currently a disconnect between what energy companies say and what they do—and that gap must be bridged through real efforts to adopt environmentally sensitive practices, clean up accidents if they occur, address health impacts, and make real commitments to renewable energy.

Brands in this sector need to appreciate the role of the public in determining their “social license to operate.” Oil companies, unlike other fossil fuel companies with longer supply chains and a less public face, are an easier target for boycotts and blame. Another unfortunate disadvantage is the tendency of consumers to lump all brands in a sector together and condemn them more or less equally, regardless of real differences in the track record and policies of individual companies. Amplifying these risks, the ubiquity and accessibility of social media has given consumers increased power to determine the fate of a brand—whether they have their facts straight or not.

Brands that live up to their promises, show genuine commitments to safety and sustainability, and regularly engage and communicate with their target audiences will stand to benefit. What consumers are really waiting for—what the world is really waiting for—is enlightened leadership, a change in tune, a real commitment to solving, not only today’s energy problems, but the energy-related problems that loom ahead (not least of all, climate change). Companies that lay out a vision, that communicate as progressive, socially responsible organizations, that show they’re serious about investing in alternatives like wind and solar—for which many consumers are willing to pay a premium—may very well outcompete less progressive companies in the years to come. In the process, all business aside, they will also change the world for the better.

FYIQ

  • ABOUT TOM ZARA
    Tom Zara is the Global Practice Leader, Corporate Citizenship, Interbrand.

    Tom.Zara@interbrand.com
  • The Time of Tough Choices is Upon Us
    The Time of Tough Choices is Upon Us
  • PAVED WITH GOOD INTENTIONS
    Paved with Good Intentions