Welcome to the Sustainable Age

Since the Kyoto Box suddenly thrust us in the public eye a couple of weeks ago by winning the FT Climate Change Challenge, we have received hundreds of mails from all over the world. This blog will deal with all matters Kyoto, serving as a FAQ for interested parties, and of course with some personal viewpoints on current human activity, which never ceases to amaze me.

While some people are developing the technology of going to Mars, supposedly to escape the destruction of Earth, others are living in the stoneage. Thankfully, it is still going to be better to live in stoneage on Earth than living on Mars, with temperatures of minus 140C and being all alone… Wouldn´t it be better to use the engineering resources to get people out of stone age here on Earth BEFORE we send somebody to other planets?

Talking of ages, we believe that we have just entered into a new age. After going through such Ages as Stone, Iron, Bronze, Industrial, Nuclear and Information, we have now entered The Sustainable Age. That does not mean that we have left the others, but they are now so established that we can take them for granted. The information Age was the shortest one so far, from it started in the early 90s with web, email and then mobile phones to half the world using it in about 20 years. In the Sustainable Age, we need to use all we have learned from the previous ages, but all our activities must be Sustainable. And we should really do it as quickly as the Information Age, so we can move on to the next Age, whatever that may be. But without the Sustainable Age fully in place there will be no other Age.

The world Sustainable contains a lot of interesting concepts - Renewable, Recyclable, Cradle to Cradle, Wasteless and so on. The main reason for the Sustainable Age is the sudden realization that we have become so many and so powerful that we are able to destroy the world we live in, and at an amazingly rapid pace too. I would say that the start of the Sustainable Age was with when “An Inconvenient Truth” was published in 2006. After that, there is no way that anybody can say “oh, I had no idea this was a problem”. Your grandchildren will be asking you 50 years from now what you did when the world found out about this massive problem.

Fortunately, Sustainable is a great thing for business. If you´re not, you will go bankrupt sooner or later. It also allows businesses to have a longer term perspective, sort of like Panasonic´s 100 year plans from the 30s instead of the Quarterly businessplans of Wall Street. Interestingly, most of the millions of existing businesses are not sustainable - at all. And as with any new age, there are new entrants that are products of the new Age waiting to gain marketshare, such as what Google did even though Microsoft was seen as invincible. So existing businesses will not only have to reengineer themselves to become Sustainable, they also have to fend off new, smaller, nimble competitors that are Sustainable from the beginning. It will be very interesting.

Another key concept of the True Sustainable Businesses are Bottom of the Pyramid and Social Entrepreneurship. No longer just a do-good exercise, solving the needs of billions of poorest will be at least as profitable as serving the wealthiest. And doing so in a way that solves fundamental social and environmental problems will generate goodwill that may not show up on the balance sheet but certainly increases customer loyalty.

Capitalism is not a new thing. And humans have been sustainable before. It is just that this is the first time these two concepts are coming together. Many activists label Capitalism the Great Evil and the End of the World. But Capitalism precedes civilisations, starting with early humanoids here in Africa when one had something the other needed, and instead of clubbing him in the head offered some other thing in exchange. Capitalism is a part of human activity, and as any other human activity there are “good” and “bad” capitalism. So here is the simple thesis: “Bad” Capitalism is not Sustainable. Why? Because sooner or later, customers will no longer be willing to spend their money with the bad companies. This consumer power makes capitalism a form of democracy but way better than government: Instead of voting once every four-five years you get to vote every day, with how you spend your money. Yes, capitalism in the globalized economy can be pretty scary, with many companies that are more powerful than countries and are involved anywhere. But for every Goliath there is a David, offering new ideas and products that the customers can vote for - every day.

As this blog will ruthlessly uncover, my personal belief is that business will always be more effective than governments or NGOs. Here in Africa, business is the only thing that works, and it is completely natural to everybody. But somehow, capitalists in the West have overlooked the developing world until now - thinking that the poor has no money so they are not worthy customers. Focusing only on Africa as a place to plunder natural resources, while dumping expired and second-rate products in return, often completely unsuitable for the local infrastructure (or the lack thereof). But sooner or later, some enterprising companies will realize that the core of capitalistic interest must be where the delta value is largest - the difference between where they are now and where they can/will be - and instead of fighting for decimal marketshares in the hypercompeititve west they will rather go for 100x improvement or more in the worlds poorest countries. But first, they have to take the customer seriously just like in the west - doing focus groups, local R&D and tailored marketing and distribution.

Incredibly, most businesses will say this is impossible. Well, ask Nokia then, which in 5 short years have brought mobile penetration from nearly zero to half in most developing countries. And they are now planning how to reach the other half. One thing is for sure: To reach that goal they will have to become Sustainable.

Welcome to the Sustainable Age.

The Carbon Economy

I am very happy that the attention about the Kyoto Box now has turned from cardboard to carbon credits. It is a very interesting topic that I at least have used years in understanding, and I am still not an expert. It is hard to get into because the terminology is set by technocrats wanting to ensure a rich market for their consulting services.

The reason why we named our company Kyoto Energy is because of the key role the Kyoto Protocol will play in lowering the cost of our products for our target market which is the developing countries. In fact, carbon credits - generated by saving CO2 emissions and paid for by the polluting countries of the west - is the only form of subsidy these countries have. (Forget the World Bank, they still support 6 times more fossil-based energy projects than renewable energy projects in the developing world).

During the first years of carbon trading (2005-2008), China and India have been getting the lions share of the credits generated. Sub-Saharan Africa only sold 2.5% of the total carbon volume. This is because initially, it has only been feasible to get carbon credits for industrial scale projects, and as we know there is not that much industry in Sub-Saharan Africa.

But now, the appropriate measures have been put in place to start having small-scale carbon credits, called Programmatic CDM (also called PoA - Programme of Activities). It allows many smaller devices to be used and combined into projects, with multiple countries in the same project as well. This mechanism was amended only last summer to the Kyoto Protocol based on protests from African countries at the Nairobi Climate Conference that the CDM system was not working for them.

The first project for Programmatic CDM has been energy saving lightbulbs in India. Kyoto Energy is taking it to yet another level, with a multi-technology, multi-country rollout targeting households in many of the poorest countries in the world. Turns out, even if 30 Africans emit as much as one single American, they still do emit - probably about 5-6 tonnes of CO2 per family per year. Our aim is to get this down to below 1. To do that, we employ a packaging approach, where we have four different devices working in concert to remove almost all use of fossil fuels (LPG, kerosene) and non-sustainable firewood and charcoal (All countries in Africa except Rwanda have deforestation, and for these firewood is NOT a renewable energy resource.).

The Kyoto Family kit consists of the Kyoto Box, the Kyoto Turbo (a smokeless biowaste stove that is used for frying, or when it is raining or at night). These two components work together to make cooking fully sustainble - and cooking is 90% of the energy use in rural developing countries. Then there is the Kyoto Bag, which is great for heating water for hygiene with a nice shower built-in, and finally the Kyoto Flash which solves the whole lighting problem which today renders most families completely inactive after dark, or they have to pay a lot of money to buy kerosene - which is also very dangerous, used mostly in open, homemade lanterns. The Flash does not generate much carbon credits, (electricity generation has less CO2 emissions than thermal generation) but the other components more than carry their weight meaning we can get the price down significantly and hopefully the Family kit will be free.

Here is the math: Let us say that each family saves 2 tonnes per year by using Kyoto Family. Each ton of CERs (CDM credits) is worth about 10 euro right now. That is 20 euro per year per family. The cost of the Kyoto Family kit is 40 euro - which means if the family uses the kit for 2 years, it should be free. Kyoto Energy makes forward contracts with carbon buyers so that we can pay for the kits up front. On the family side, we are introducing “Usage Agreements”, which means that a family can receive the kit for free but they have to promise to use the kit or return it. Everything is based on voluntary participation, and those who can will help by reporting their energy use through mobile phones and internet.

There has been a lot of discussion in the US - finally - about joining the rest of the world in “cap and trade”. We believe that the Kyoto Family kit is a good example of how carbon credits actually work - better than aid or anyting else tried so far - to reduce poverty, reduce environmental devastation in the developing world and enable the enactment of the Millennium Development Goals (MDGs). This is green capitalism at its finest.

Kyoto Family is also unique because it is not only an Abatement solution (helping reduce CO2 emissions), but it is also an Adaptation solution - which is the second important part of the Kyoto Protocol, meant to help those already suffering from climate change. And the only ones really suffering from climate change so far are the people around the equator, where rain seasons are much more unpredictable than before, making the rain dependent agriculture 80% of the population depend on a lottery. Amazingly, there is still no direct compensation for Adaption efforts - some funds are promised and are in the pipeline, but some experts say we are still 2 years away from payouts. With Kyoto Family we are already prepared for this event, in fact that could allow us to expand the Family kit to also include irrigation pumps, rainwater catchment systems and so on.

In addition to carbon cap and trade, we believe the future will bring other “polluter pays, cleaner receives” mechanisms - credits for for instance water, plastic, soot, curable diseases and so on. We are ready for all of them although they may be years away.There may still be a lot of debate this year whether some developing countries (BRIC countries especially) have to have their own emissions targets like the west. As these countries progress, they will no longer be developing countries and they will have to pay the same way the west (except the US so far) are paying. What is sure, is that the price of carbon will have to go up (it is a commodities market, but international agreements influence the price greatly) in order to finance more expensive clean up technologies. Fortunately, the poor already have in place the necessary agreements and tools to make this happen - today. Despite the traditional doom and gloom surrounding Africa, they have a much easier job at becoming carbon neutral than any other continent as Africans are so incredibly frugal regarding their energy use.

A final note - deforestation is actually not a part of the Kyoto Protocol yet (amazingly) and in the meantime projects that save trees only get the emissions factor from fossil fuels. These are usually twice as efficient as woodfuels, meaning that the poor who are switching from wood to solar energy only get about half the carbon credits they are supposed to. We hope that in Copenhagen deforestation (”non-sustainable firewood”) becomes a part of Kyoto II so that the poor can get properly paid for their carbon saving efforts and thus even better Family kits that could include electric transportation of people and goods, information technology and so on. Be sure that Kyoto Energy is already planning such eventualities.

The good news for African carbon credits so far is that they carry much higher positive humanitarian and wildlife effects. While methane recovery projects from Chinese coalmines in a strange way benefits emissions - and coal mine owners - the African credits are high on poverty alleviation, disease control, education benefits and so on, so most compliance buyers are very interested in these credits as they give way more “bang for the buck”. There are ways to measure this, such as Social Carbon which is a Brazilian method that is now going worldwide. Gold Standard credits is another way to ensure the carbon money goes into renewable energy. Kyoto Energy aims to comply with both, and we believe in the future that such projects will command higher selling prices in the market (now they are mostly boosting demand from the region).

Receiving the FT Climate Prize has given us a lot of exposure and funds to prove that our plan is workable. Like Babe Ruth, we are pointing out of the ballpark. This weekend alone, we have received requests from 20 countries (before the weekend we were aiming for 10) to participate in the initial pilot trials. We are now busy doing our carbon deals, and hope that the US will join the rest of the world in cap and trade. Obama is more than welcome to buy his White House offsets from his own grandmother here in Kenya!