Monday, 23 August 2010

Sustainability Marketing in an Era of Tough Oil

“We are moving from an era of cheap abundant energy to an era of scarce, hard to get expensive energy” says Terry Lynn Karl, Professor for Political Science at Stanford University in the movie “A Crude Awakening: The Oil Crash” (an enlightening documentary – a must see for concerned citizens, consumers, and corporate leaders!). Hard to imagine the transition from cheap to expensive oil? Yes! Why is that so? Probably, because it is beyond our empirical experience. Most of us were born and brought up in the 20th century, an era of cheap oil. As a consequence of its relatively cheap price, oil is ingrained in modern societies. It is the fuel of globalisation and the economy. Most of our economic and human activities depend on oil, whether we fly around, drive a car, eat food, heat the house or use a computer. Our entire infrastructure (roads, buildings, agriculture, food, IT) depends on oil. The high dependency on oil might soon lead to “A Crude Awakening”.

The Oil Crunch”, the second report of the UK industry taskforce on peak oil and energy security is a wake-up call for economy. Based on numbers and different, credible sources the report states that after the credit crunch in 2008 we will face another crunch within the next five years – the oil crunch. As we reach the maximum oil extraction rates, oil prices are likely to be both higher and more volatile, with severe consequences for economies and societies. It will become tough (and costly!) to extract more oil from the surface of the planet (e.g. deep sea and tar sands). After Peak Oil, and the transition to ‘tough oil’, the likely next step will be into an economic trough.

Is that an issue for sustainability marketing? Yes, definitely! What can corporate leaders and sustainability marketers do about it? We suggest three steps to anticipate a (not so distant) future, which might be overshadowed by economic, political and social upheaval.

The first step is to analyse the oil dependency of current products and services offered to customers by the company: What is the oil input for the production of the products and services? How far does the product travel from cradle to grave and how much oil is needed along the way? Does the product consume oil during usage? If so, how much? To get an overview, an energy balance from cradle to grave of the product will do, putting a special emphasis on oil as an energy source. It gives an idea, how much oil the final product contains and uses up.

The second step is to create scenarios: What will happen if the price of oil doubles from 80 US$ per barrel to 160 US$ per barrel in the year 2013 (2015, 2017)? What will happen if oil prices triple or quadruple in the coming years? To which extent does it affect production, transportation and use costs? How does it affect the demand? The higher the oil dependency during use the higher is the likelihood of significant demand shifts. Think of cars, especially sports utility vehicles, and air travel. In order to create awareness and sensitivity in the company it useful to involve key decision makers in the development and interpretation of these oil price shock scenarios.

The third step is to take action and reduce the dependency on oil. Looking for alternatives is not an easy task and takes (a lot of) time. Forward-thinking companies like Interface, Patagonia, Nike and FritoLay have already done so. By increasing the energy-efficiency of their products, and switching to renewable resources, they become less dependent on oil (and eventually they become independent). It does not take a prophet to predict that these sustainability pioneers and leaders (as also described in our text book “Sustainability Marketing: A Global Perspective”!) are more resistant to oil price shocks than their peers, maintaining (and probably) increasing their competitiveness in the upcoming era of tough oil.


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