How Can Businesses Tackle the Climate Change Catastrophe?
Innovation is the key to reducing fossil fuel emissions. A study of the oil sands identifies two paths forward.
Only 12 years may remain until climate change catastrophe.
On October 8, 2018, the Intergovernmental Panel on Climate Change (IPCC) reported that the planet is already experiencing the effects of one degree warming. Looking ahead, the report warns that the planet will experience “severe climate change impacts” with 1.5 degrees warming, which could happen as early as 2030.
To help prevent this damage, what can businesses do to quickly and radically lower their fossil fuel emissions?
Meeting this goal puts pressure on every industry, but particularly on carbon-intensive businesses, such as oil, gas, coal, and cement companies. These same industries have the greatest opportunity to help, but only if they can cut their emissions deeply.
Only 90 companies have been responsible for 63 per cent of worldwide greenhouse gas emissions from 1751 to 2010. The actions of just a few carbon-intensive companies can improve our ability to deflect climate change catastrophe.
To slow climate change, companies need to innovate products and processes
Companies need rapid and wide-reaching radical innovations to transition to a low-carbon economy. This likely means they will need to disrupt their existing business model to find new ways to be in the energy business and to move towards new technologies.
However, businesses are not usually wired for radical innovations. Most are better at incrementally enhancing or upgrading their existing operations or products — making them faster, cheaper, better. It’s easier to make a production process more fuel efficient than it is to shift to a radically different type of production technology that no longer depends on fossil fuel.
The heavy carbon emitters, especially, struggle with radical change, because they have so much capital invested in their current activities, which provide a strong flow of revenue to maintain their operations. They are reluctant to take risks because of the potential disruptions to their operations and threats to secured revenues. Adding to the inertia, they are often staffed by people who are trained to solve problems, but not question the problems they are asked to solve. It is easier to go with the technology they know than start investing in technologies that might fail. Radical innovations require a creative mindset and a willingness to fail.
The Canadian oil sands industry provides two models for change
For two years, we have studied the Canadian oil sands industry in their innovation efforts to lower production costs and improve environmental stewardship.
The research team consists of Tima Bansal and Sylvia Grewatsch (Ivey Business School) and Joel Gehman (University of Alberta). We worked with six different project partners, including three oil sands operators, a provincial government agency, a federal government agency, and an industry alliance. We analyzed both corporate and collaborative innovation processes for technological development. Our data include interviews, observations, strategy documents, and archival documents.
Based on our work, we identified two approaches towards radical, sustainability-oriented innovations. These two approaches can be categorized as inter-organizational innovation efforts across multiple organizations and intra-organizational innovation efforts inside a single organization.
Innovation across organizations. The industry tries to address the carbon challenge collectively through industrial collaborations and partnerships. One leading example is the Canadian Oil Sands Industry Alliance (COSIA). Established in 2012, COSIA represents the industry’s attempt to generate disruptive innovations more cheaply and quickly. To improve accountability and environmental performance in the oil sands, COSIA initiates joint industry projects to lower the burden of radical innovations, such as large investments and long-time horizons, for each participant
Innovation inside an organization. In addition to these collaborative efforts, individual oil sands operators pursue radical innovations with the potential to decarbonize their business models. These efforts can provide competitive advantages. For example, an oil sands operator in our project separated radical research and development (R&D) work from day-to-day incremental process improvements. By leading this R&D work from its headquarters, this company could nurture visionary and risky innovations and ideas, separated from the urgent engineering and operational challenges occurring daily at its oil sands plants. However, such radical innovation efforts often require major capital investments and long time horizons, so most oil sands operators had difficult making the time and investing the money to pursue radical innovations.
Ultimately, if companies want to respond to the alarm that the IPCC has sounded, we believe they will need to find a way to collaborate with competitors and government, and to re-imagine their own business models and operating templates.
For questions related to this article or to our research about innovations for sustainability in the Canadian oil sands, please contact Sylvia Grewatsch.