Looking Beyond the AC Argument: A Comprehensive Approach and total Value chain analysis is needed Climate investments.

What the AC Argument Misses, and What to Do About It

Ah, summer. Season of sunscreen, salsa, sangria… and the inevitable onslaught of articles warning that air conditioning will kill us all. The argument is simple: ACs use too much #energy which releases too much CO2, causing cooler homes to mean ever hotter temperatures outside. Therefore, argue these columnists implicitly (and sometimes explicitly), we need to drastically reduce our reliance on AC in order to save the planet. The problem with this approach is that it is not only ignorant of human nature, but also neglects the real, comprehensive solutions we must undertake in order to solve this crisis in the long term.

The (green) energy sector seems particularly prone to pie-in-the sky thinking that ends up impeding tangible, accessible progress. Does last decade’s push for developing countries to embrace expensive renewables ring any bells? The hard truth is that no person or government will voluntarily turn off their AC unit or coal power plant if the alternatives are sweaty, uncomfortable or prohibitively costly. We need to come to terms with the fact that AC adoption will only accelerate, but recognize at the same time that ACs are only one small part of an increasingly interconnected #energy puzzle, one where worthwhile responses will need to address all the abutting #climate puzzle pieces.

Doing so will take a paradigm shift in the way we think about the very nature of energy, climate and even the foundations of modern investing and stakeholder capitalism. For too long, #investors have been trained to look at discrete categories along a given value chain and find opportunities within to improve returns. This could, for example, take the shape of a new electric car that has no tailpipe emissions but heavy environmental costs from lithium mines in Africa. The car is a step in the right direction, but the investor’s net gain excludes parties who really should be considered stakeholders.

Even purely financially, if a company builds a solar farm that promises to halve a town’s energy bill, but the grid is too feeble to deal with the extra power, is anyone coming out ahead? Producing more or cheaper energy doesn’t mean much in a vacuum. Tomorrow’s investor models will have to evaluate entire supply chains as units, assembling information about indirect and delayed cost, technology readiness levels and where limited investor dollars should most efficiently be allocated.

New approaches on the innovation side are also sorely needed. Especially in our recent era of easy money along with social glorification of moonshots and “the next Steve Jobs,” entrepreneurs have been trained to develop wonderful solutions in search of problems to solve. Just like currency, human capital is finite, and innovators need to understand the problems facing the energy sector to make sure the designs they dream up will actually fit somewhere inside. Venture capitalists specifically need to stop asking startups “what’s your competitive advantage?” and start asking “where does your solution fit into the market’s existing or developing supply and value chains?”

The innovation ecosystem, once a haven of radical, out-of-the box thinking, has become constrained by the symbiotic investor-inventor relationship it once hailed as the harbinger of unprecedented progress. It may be tempting to cast away startups whose value proposition isn’t immediately clear. However, VCs and accelerators need to recognize that they can add more net value to their industries in the long term by playing X Factor and joining together early-stage companies to pool their resources and create more than the sum of their parts.

So yes, people will continue to run their ACs, but that doesn’t have to be the end of the world. Instead, it can be an opportunity to assimilate a new industry-wide cost-benefit analysis, one whose lens is more realistic, macro and long-term than ever before. Thinking holistically will free energy investors and entrepreneurs to tackle problems realistically and reliably. To use resources intelligently and sustainably. And to open up our world to new, sorely-needed ways of thinking, living and solving.

#EnergyFocusedClimateForward #Investmentanalysis #supplychain #sustainability #sustainable #innovation #climatechange