Want to Impact Climate Change? Tackle the Employee Commute

Climate change and sustainability have been major topics in corporate social responsibility for a decade or more now. That’s a good thing. While the severity of the economic and social impact of climate change and the most effective solutions and mediation strategies are still a subject of a lot of debate, that a. climate change is happening and b. CO2 emissions are a primary contributing factor are accepted scientific facts in all but the most politically extreme or scientifically unaware corners of the world. So almost all of us can agree that companies being conscious of their carbon footprint and taking positive steps to improve that footprint is a good thing.

In this article, I’d like to explore what the most effective strategies for reducing CO2 emissions are and how companies can therefore best help.

It is first important to understand what drives US carbon emissions. Basically, CO2 is the byproduct of burning fuels for energy - principally coal (which emits a lot of CO2 relative to the energy produced), petroleum (which emits a little less) and natural gas (which emits less still). Other energy sources - such as hydroelectric power, nuclear, wind and solar do not emit significant amounts of CO2.

The US emitted 5.2 million tons of CO2 in 2018. The breakdown of the significant sources was below:

Petroleum is used principally in transportation - in fact 70% of the petroleum burned was used in automobiles, with over 90% of that used in passenger vehicles.

Coal is used almost exclusively in power generation (over 90% of coal burned is in power plants), primarily in older power plants in the northeast and the midwest, where coal supply is abundant and used to be the lowest cost of electric power.

Natural gas uses are more varied - it is used in power generation in newer power plants, in homes for heating and appliances and in industrial applications such as boilers - usage is about 1/3rd power generation, 1/3rd industrial applications and 1/3rd residential and commercial applications.

Of note in all of this, over 30% of US carbon emissions are directly attributable to passenger vehicles, as much as all of the emissions from natural gas and more than all of the emissions from coal.

From a macro standpoint, there are some obvious things that would reduce carbon emissions, but all carry a cost. Natural gas emits 40% less CO2 than coal does per KWH of electricity generated and renewables and nuclear energy generate effectively 100% less. Almost two thirds of US electric production is wasted due to an inefficient and outdated system of power transmission lines and transformers with parts of the grid being 80 years old at this point. At the current mix of electrical production - a mile driven in a plug-in electric car generates about 1/3rd of the CO2 of driving a mile with a gasoline engine and this number improves as the mix shifts to less coal and more renewable energy. But unless your company is in the automotive, power generation or power distribution industries, you ability to impact these issues is fairly limited (although not zero - more on that later). Some of these macro issues miss a much more practical set of impacts that a company can have on CO2 emissions.

I mentioned fully 30% of all CO2 emitted in the country is emitted by passenger vehicles. And over 30% of passenger vehicle miles driven are spent commuting to and from work with over 40% of emissions generated during work related commutes (work related commutes tend to be less efficient because they tend to happen at times of peak traffic). So 12% of all CO2 emitted in the US is simply getting to and from work. As perspective, here is the projected impact on the 5.2 million tons of CO2 emitted of various potential changes to our energy infrastructure, large and small:

Simply reducing commutes by 50% would take out more carbon emissions than any of these other actions. These are all arguably good things to do, but many are pricey - replacing 50% of our coal power plants with natural gas plants would cost about $260 billion. Tripling solar and wind capacity would require about $400 billion. Upgrading just the oldest half of our transmission lines and transformers would likely cost around $1 trillion.  

Some of this is happening on its own thanks to economics - today, it is both cheaper to build a natural gas power plant and the fuel is cheaper per KWH than a coal plant - meaning that basically all new and replacement investments will not be in coal - continue a long shift that has meaningfully contributed to the US leading the world in reducing carbon emissions over the past decade. Solar and wind installations are already increasing thanks in part to government support but in part to improving unit economics.

Companies not in the power generation game have improved their carbon footprint through:

1. Reducing their energy consumption through investing in more power efficient technologies from lighting (the massive conversion to LED lighting is a huge success story) to variable speed motors (which use less energy than fixed speed motors which are often overworking and over consuming versus their need)
2. Installing renewable energy co-located with manufacturing facilities
3. Replacing outmoded technologies such as coal and fuel oil boilers with more efficient and less carbon emitting technologies such as natural gas boilers

These have often been win-win investments for many companies - LED lighting not only reduced electrical consumption and therefore carbon emissions but also has FAR lower lifecycle costs than other lighting technologies. Renewable energies often are good IRR investments (particularly with government support) and also hedge against future price risk around energy. Replacing coal boilers with natural gas usually saves a lot of money on both energy cost and maintenance. In other words, companies have been able to make good returns on their investments in sustainability. A typical best-practice policy has been to make sustainability investments that provide positive rates of return but to allow for a slightly lower hurdle rate than for other efficiency investments - for instance a company that normally requires a 25% IRR for efficiency investments might drop it to 15% for investments that have a sustainability element. This has the effect of tipping the scales in favor of reducing the company’s carbon footprint, but also makes good business sense - the certainty of return is a lot higher for replacing a boiler or installing a wind farm than it is for automating a packaging line.

Companies are able to make a good return on investment and simultaneously demonstrate the progress that they have made in reducing their carbon footprint through things like corporate social responsibility reports.

What I am proposing is that to tackle this problem holistically, companies adopt the same type of policies and tracking of the carbon impact that they have that extends beyond the walls of their facilities - that is that they implement serious win-win strategies that reduce the carbon footprint of their employee’s commutes.

Here are what I would consider best practice policies for addressing commute-related carbon emissions:

1. Actively Encourage Work from Home

Technology has increasingly made working from home an effective way of getting work done for almost all knowledge jobs. I will admit to personally being slow on this trend - I like to work informally and through most of my career I preferred being in the office to working from home. But now as I work principally remotely in consulting roles, I’ve learned the set of habits that make remote working effective. Almost every knowledge job nowadays can be done remotely - we learn this every day when we work with people in different offices, cities and countries. Many companies have begun to ALLOW working from home, but cultures still provide a strong incentive to “be seen”. I’m suggesting companies should go way beyond allowing or even subtly encouraging working from home. They should offer financial incentives for people to give up their office space. The average cubicle costs about $2,500 per year between rent, utilities and IT infrastructure and the average private office costs about twice that, with significantly higher costs if the company also has things like a subsidized employee cafeteria, workout facilities, day care, etc. By providing an actual incentive proportional to the savings for an employee who works from home, the company reduces its costs, can dramatically reduce its carbon impact and provide a valuable perk to employees who can enjoy the flexibility (and extra money!) that this provides them. For sure, working from home is not or everyone - I would have struggled with it greatly early in my career - but for those who want it or are neutral about it, promoting it as much as possible is a huge positive. For employees who still want time in the office to connect with co-workers, offering half the incentive for employees that agree to share office space and alternate working from home with another employee is a good middle-of-the-road approach.

2. Be Thoughtful of Mass Transit Infrastructure and Commute Time when Locating Facilities

Where you put an office or a manufacturing facility can have a major impact on how your employees that do have to come in in person commute and therefore emit CO2. If you are putting an office in a major city, make sure it is close to mass transit. If you are building a manufacturing plant, it is often not possible to be part of a mass transit infrastructure, but you can still locate closer to town centers where commute times will be minimized and provide incentives for carpooling, which will reduce the parking infrastructure that you have to build. This is win-win as shorter and easier commutes are a great recruitment and retention tool.

3. Avoid Shift Starts During Peak Travel Times

If you are a 24 hour operation with shift work, starting your shifts at 6 AM, 2 PM and 10 PM rather than 8 AM, 4 PM and 12 PM will dramatically reduce the amount of time your employee that have to drive sit in traffic and emit CO2. If you are an office, think about whether 6 AM-2 PM or 10 AM-6 PM shifts for knowledge workers wouldn’t work just as well as the classic 9-5, which puts employees in the heart of rush hour. This is yet another win-win as it will save employees on their commute time.

4. Do the Simple Stuff to Promote Good Habits

Preferred parking for carpoolers. Electric chargers for plug-in vehicles. For employees who receive company cars, requirements around energy efficiency (ideally electric, where that is not practical, high gas mileage). These are very low cost ways to incent CO2 reducing behavior in employees.

5. Measure and Track

Put mechanisms in place to track CO2 from employee commutes. Set tangible goals and track your progress. Educate your employees about how much of their income is going to commuting - I remember one person I talked to who had a 50 mile commute each way every day being shocked to learn that they were spending about $12K per year all-in on commuting costs. Same as anything you care about - you get what you measure you get it faster when you set tangible goals.

None of this is to say that companies should abandon their existing sustainability programs - all of the investments that companies are making have had a real positive effect - US carbon emissions peaked in 2007 and are down almost 15% from the peak, unrivaled progress in the developed world (our massive conversion from coal to other fuel sources has been a huge factor here). But by adopting a more comprehensive look at how their operations impact CO2 emissions and targeting the largest single source of CO2 - the employee commute, companies can have an even more positive impact on the environment while simultaneously making themselves a better and more enjoyable place to work.

Have a great day.