Summary by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida
Environmental Cost Main Page
| Social Accounting Main Page
This is a summary of an interview HBR editor Idi Ignatius had with Bill Gates related to Gates 2021 book, How to avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need. Knopf.
HBR: Why are you taking on this topic now?
Gates: Millennials and some political candidates are making the climate change issue a priority, but do we really have a plan to get carbon emissions to zero? I want to show what is required to develop the breakthroughs we need.
HBR: The book seems to pit the dire threat of climate change against your own propensity for optimism. What's the main idea that you'd like readers to take away?
Gates: Getting to zero carbon emissions is harder than people think. The focus is on the easy ways to reduce carbon emissions (renewable sources of electricity, or electrifying passenger cars) but we need to make progress in the big areas like low-emissions concrete and cement using government policies, and changes in corporate behavior, and personal consumption habits.
HBR: To what extent are we now on the path to get to zero by 2050?
Gates: We are not on track. Emissions keep going up and we need dramatic declines across every category every year.
HBR: You write that even if we can cut carbon emissions in half, that would only postpone a climate catastrophe. Is there a precedent for a transition of this magnitude?
Gates: This scale of change will need to be the most amazing thing humankind has ever done. We need to invest in innovations that will really make a difference.
HBR: If we can't get to zero, what happens?
Gates: The temperature will keep going up, natural ecosystems like coral reefs will disappear, some areas like Canada will be able to grow more crops, but others like Texas and Mexico will produce fewer crops. In parts of Africa it will be disastrous because they won't have enough food to survive.
HBR: You write that by the middle of the century, climate change could cause five times as many deaths as Covid-19, with a more devastating economic effect. Given our slow response to the pandemic, how are we going to respond to the more abstract slow-moving effects of climate change?
Gates: In the case of Covid-19, if the U.S. had taken the steps that I and others suggested we would have ended up with a very modest number of deaths. Responding to climate change is more difficult because the innovation needed is much greater and the negative effects are way out in the future. There are still questions about the possible effects, but disaster is guaranteed unless we reduce emissions very, very dramatically.
HBR: There is also the problem of climate-change denial. What about that?
Gates: Denial is declining but there are two problems. There are still deniers so we have to minimize the cost of what we do to avoid climate change. In addition, we have to show the believers just how difficult the challenge really is.
HBR: Who is the main audience for your book? People who believe in climate change but don't understand what it will take to make a difference?
Gates: Yes, its for people who think this will be easy. What we need is a lot of science, increases in R&D budgets to draw the talent we have in universities and labs. We need to tap high-risk capital for the super-long term nature of the products we need.
HBR: The solution will require a consensus that doesn't exist at present because of the strong anti-science, anti-expert views in society.
Gates: I believe more people will come around as they see the forest fires and hurricanes that result in part from climate change.
HBR: You coined the term "green premium" to identify the extra amount we need to pay for zero-carbon substitutes.
Gates: The key metric is how much we are bringing these premiums down to acceptable levels as we develop innovations and new products.
HBR: What about the political element? One president develops policies to protect the environment, the next president issues orders to undo the protections.
Gates: Innovation is the only way to solve the problem. We need good policies, but we also need larger R&D budgets, a carbon tax and other measures to reduce energy demand. We need a plan that costs tens of billions that fosters innovation.
HBR: So ultimately it's all about innovation?
Gates: Without innovation I don't think we can avoid a climate disaster.
HBR: How do you increase the supply of innovation?
Gates: There are some models like the cancer research supported by $40 billion a year at the National Institutes of Health. The next piece is to get risk capital involved.
HBR: What about nuclear energy? You made the argument for nuclear power sparingly.
Gates: Nuclear fusion is an alternative, but it has a huge societal acceptance problem in terms of safety. In addition, I didn't want the book to come across as a promotion of TerraPower (a nuclear-reactor design company that Gates cofounded and chairs). I wanted to be neutral about the different paths to cleaner energy.
HBR: Is there a point of no return for climate change?
Gates: No, it's just a matter of how many people will die and how many ecosystems will disappear. Eventually, the Amazon will dry up and we will no longer have Artic ice, polar bears, coral reefs, or growing crops.
HBR: How do you insure that this is a truly global effort?
Gates: We need to make it attractive for less-wealthy countries, but the rich countries, (particularly the U.S. with so much innovation power) need to invest and come up with approaches to get us to zero.
HBR: What can individual companies do to move the needle?
Gates: They can buy clear aviation fuel for private fleets, and invest in high-risk breakthrough companies.
HBR: What about big institutional investors? If they pull out of carbon, won't that help?
Gates: Not at all. But if they fund high-risk innovations related to green premiums they become part of the solution.
HBR: What do you hope to see from the government?
Gates: We need citizens to care about and promote green ideas so politicians feel they have a mandate to work on the climate problem. Without the government creating demand for new products we are not going to get to zero emissions in 30 years.
HBR: What can individuals do to make a difference?
Gates: They can buy clean products like electric cars and elect politicians who are willing to create the policies and fund the R&D needed. We need people who promote spending tens of billions for innovation across party lines.
__________________________________
Related summaries:
Boer, G., M. Curtin and L. Hoyt. 1998. Environmental cost management. Management Accounting (September): 28-30, 32, 34, 36 and 38. (Summary).
Busco, C., G. Fiori, M. L. Frigo and A. Riccaboni. 2017. Sustainable development goals: Integrating sustainability initiatives with long-term value creation. Strategic Finance (September): 28-37. (Summary).
Epstein, M. J. and S. D. Young. 1999. Greening with EVA. Management Accounting (January): 45-49. (Summary).
Hammer, B. and C. H. Stinson. 1995. Managerial accounting and environmental compliance costs. Journal of Cost Management (Summer): 4-10. (Summary).
Hughes, S. B. and D. M. Willis. 1995. How quality control concepts can reduce environmental expenditures. Journal of Cost Management (Summer): 15-19. (Summary).
Johnson, H. T. 2012. A global system growing itself to death - and what we can do about it. The Systems Thinker (May): 2-6. (Summary).
Johnson, H. T. 2006. Sustainability and "Lean Operations". Cost Management (March/April): 40-45. (Summary).
Kaplan, R. S. and K. Ramanna. 2021. Accounting for climate change: The first rigorous approach to ESG reporting. Harvard Business Review (November/December): 120-131. (Summary).
Kite, D. 1995. Capital budgeting: Integrating environmental impact. Journal of Cost Management (Summer): 11-14. (Summary).
Lanen, W. N. 1999. Waste minimization at 3M Company: A field study of nonfinancial performance measurement. Journal of Management Accounting Research (11): 29-43. (Summary).
McKeon, A. and G. Ranney. 2013. Ongoing Discussion "Thought Piece". Thinking about management from a climate change perspective. Presentation at Aerojet Rocketdyne's InThinking Network. (September): 1-29. (Note).
Lawrence, J. E. and D. Cerf. 1995. Management and reporting of environmental liabilities. Management Accounting (August): 48-54. (Summary).
Reinhardt, F. L. 1999. Bringing the environment down to earth. Harvard Business Review (July-August): 149-157. (Summary).