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The Hershey Company announced this week that it exceeded its goal for sourcing certified cocoa. Hershey, the largest chocolate maker in the U.S., sourced 18 percent of cocoa globally in 2013 from certified farms. That is almost double the 2013 goal of 10 percent, which means one-fifth is being sourced through sustainable practices.

Hershey is on track to meet its goal of 100 percent certified cocoa by 2020, the goal it set in 2012 after much pressure by the advocacy group, Green America. The company’s next milestone is to reach between 40 and 50 percent by 2016. The certified cocoa is verified by independent auditors, including UTZ Certified, Fair Trade USA and Rainforest Alliance Certified. Hershey also announced that its Scharffen Berger brand reached its goal to source 100 percent certified cocoa by the end of 2013. All Scharffen Berger brands are now Rainforest Alliance Certified. Hershey’s Bliss chocolates and Hershey’s Dagoba organic chocolate reached the same goal in 2012.

"We are proud of our substantial progress in our first year of this important initiative to advance the well-being of cocoa-producing communities," said Terence O’Day, senior vice president and chief supply chain officer for Hershey's. "This is just one of many initiatives through local NGOs, national governments and development agencies to address child labor and improve the livelihoods of cocoa farmers around the world. These projects include leadership and economic training for women farmers, literacy, health and farm safety programs as well as the recent opening of a Hershey-supported primary school in western Ivory Coast."

Hershey’s announcements are part of the company’s commitment to support sustainable cocoa farming through its 21st Century Cocoa Sustainability Strategy - a plan to help cocoa communities grow sustainable cocoa. It includes the CocoaLink mobile phone program, launched in 2011 in Ghana and expanded into the Ivory Coast in 2013. The program uses mobile technology to give free agricultural and social training to rural cocoa farmers. More than nine in 10 Ghanaian cocoa farmers have access to mobile phones. Since its launch, the program has registered over 16,000 cocoa farmers in 550 communities in Ghana and provided over 300,000 text messages in the local language, plus addressed illiteracy through literacy training in communities.

The strategy also includes the Hershey Learn to Grow farmers and family development center. Launched in 2012 in Assin Fosu in Ghana’s central cocoa region, the center helps farmers improve crop yields and quality which, in turn, improves their lives. It improves the lives of 1,250 cocoa farm families, impacts more than 6,000 community members, and brings high-tech learning to rural farm villages. For example, Hershey launched a distance learning program allowing about 80 middle school students in classrooms in Hershey, Pa. and Assin Fosu to connect.

The technology is also used for training cocoa farmers on better practices. West Africa, namely Ghana and the Ivory Coast, produces 70 percent of the world’s cocoa beans. According to Hershey, West African cocoa farmers produce less cocoa per hectare than cocoa farmers in Asia or the Americas. Child labor is also common in West Africa. A Tulane University report on child labor in the cocoa sector in the Ivory Coast and Ghana found that 25 to 50 percent of the children in households in both countries work on cocoa farms. Children working on cocoa farms are “frequently involved in hazardous work,” the report states. The U.S. Department of State estimates that more than 109,000 children in the Ivory Coast alone work under the "the worst forms of child labor," and about 10,000 are trafficked or held as slaves.

Image credit: Andy Melton

Royal Dutch Shell's new ceo Ben van Beurden has announced that the company will not attempt to drill in the Alaskan Arctic in 2014.

The decision follows the recent Ninth Circuit Court decision against the Department of the Interior which raises substantial obstacles to Shell’s plans for drilling in offshore Alaska. The legal challenge was brought by a number of environmental and Indigenous groups.

“This is a disappointing outcome, but the lack of a clear path forward means that I am not prepared to commit further resources for drilling in Alaska in 2014,” van Beurden said. “We will look to relevant agencies and the Court to resolve their open legal issues as quickly as possible.”

Responding to the news, Greenpeace International Arctic oil campaigner Charlie Kronick said: "Shell’s Arctic failure is being watched closely by other oil companies, who must now conclude that this region is too remote, too hostile and too iconic to be worth exploring. In an era of declining profits, increasing costs and unprecedented levels of public scrutiny the Arctic is simply not worth the risk." 

Greenpeace maintains that Shell has spent over $5bn on its Alaska programme since 2003, and has failed to drill a single well after a series of problems during a drilling season in 2012.
 

Korea’s big three shipbuilders - Hyundai Heavy Industries, Daewoo Shipbuilding and Marine Engineering, and Samsung Heavy Industries - say they are committed to making a fresh start with ethics in 2014 after a number of bribery scandals last year. The three companies are the world’s largest shipbuilders with a combined order value of US$37.4 bn last year.

Bribery emerged as a major problem when the shipbuilding industry suffered a sharp drop in orders in the wake of the global economic slowdown.

Hyundai Heavy Industries (HHI), the nation’s largest ship manufacturer, held an “ethics management resolution” event. HHI chairman’s and more than 150 high-ranking executives, including ceos from affiliates, signed a pledge to pursue ethical management.

“We need to be reborn through major reform,” said the company which has pledged to tighten discipline and strengthen punishments for illegal activities.

Prosecutors recently detained 12 former employees of HHI for taking bribes from suppliers, and arrested three employees from HHI suppliers. Prosecutors said the HHI employees received about KRW 3.6bn in bribes from suppliers since 2007.

The shipbuilder said that since the scandal last year, it has added emphasis on law-abiding management, appointing a president-level executive to oversee ethics, and creating an ethics “compliance unit.”

The compliance unit will pursue programmes to prevent illegal activity and institute systems to monitor business procedures.

Daewoo Shipbuilding and Marine Engineering has already restructured its management ethics. Last November it separated audit and ethics management teams and doubled the number of auditors. The shipbuilder also accepted the resignation of 10 executives. Last year, prosecutors indicted more than 50 people including employees from both Daewoo Shipbuilding and its subcontractors for bribery.

According to the prosecution, a group of executives and employees at Daewoo Shipbuilding collectively took about KRW 3.5bn in bribes from the company’s subcontractors.

Prosecutors have mounted major investigations into Samsung Heavy Industries for bribery and accounting fraud in recent years.

However, only one employee was taken into custody for bribery last year. In his New Year’s message, the president emphasized that establishing a clean corporate culture will be a priority.

Meanwhile, analysts say that despite these scandals, the big three shipbuilders are aiming high this year.

According to a report from Woori Investment and Securities, the three major shipbuilders are likely to set their 2014 targets 10% higher than last year.

Woori speculated that the three would aim for a total of $45bn in revenue.
 

I really wish I could take credit for that headline but I can’t. It belongs to one of my favourite British poets, Roger McGough. The first line goes like this: “There are fascists pretending to be humanitarians.”

The poem came to mind at the beginning of this year following the Dennis Rodman/Kim Jong-Un debacle. Rodman’s protestations that by taking a trip to the oppressed country he wasn’t letting down the downtrodden people of North Korea and his admission that talking about human rights really wasn’t his job, made me incensed. What is that tiresome, trite phrase? ‘With great power comes great responsibility’ …just change the ‘power’ to ‘media power’ and you get my point.

And talking of ‘power’, another power was involved. Indeed, the showcase basketball match, performed to celebrate the dictator’s birthday, was originally to have been sponsored by Paddy Power but just before Christmas the Irish bookmaker pulled out citing “changed circumstances”. The change of heart came just after Kim Jong-Un ordered the execution of his uncle.

While Paddy Power has a reputation for ‘alternative’ marketing, who on earth thought it was a good move to sponsor Rodman’s visit? I did approach Paddy Power for a rationale but none was forthcoming. Paddy Power had previously defended its position – in sponsoring an earlier trip of Rodman’s to North Korea – telling The Daily Telegraph: “Paddy Power has an existing relationship with basketball legend Dennis Rodman and is supporting him, at his request, in his mission of basketball diplomacy.” Let’s be honest, if Dennis Rodman really feels it is right to be going to North Korea, he is wealthy enough to pay for it himself. ‘Basketball diplomacy’ indeed.

Rodman’s comments are as mealy mouthed as Russian president Vladimir Putin’s comment that gay athletes are welcome to the Sochi Olympics –that kick off this month - with the proviso “as long as they don’t promote homosexuality”. How welcoming do you find that? It cannot be right that the IOC is condoning the whole issue by turning a blind eye. Just look at Principle 6 (of the Olympic charter): it states: ‘Sport does not discriminate on grounds of race, religion, politics, gender or otherwise.’ It’s crystal clear to me.

And the ‘wrongness’ and sadness of the situation reminds me of another poem- the incredibly brilliant and moving Black Roses by Simon Armitage, a poetic sequence written in the voice of Sophie Lancaster, a 22-year-od attacked in a Lancashire park on a summer night in 2007 and who died several days later. She – and her partner – were attacked for being Goths. Attacked for simply choosing a different style of dress from their attackers. In hindsight it was described as a hatecrime and the Sophie Lancaster Foundation was set up subsequently as a charity to oppose all forms of victimisation. At one point the poem reads:
“Do they find offence at the studs in my lips, or the rings in my ear?
Are they morally outraged by what we wear?
We are kindly creatures, peaceful souls, but something of our life aggravates theirs,
something in their lives despises ours.
The difference between us is what they can’t stand.”
 

Vera Kurochkina, UC RUSAL Public Relations Director, explains the aluminium giant's role in Russia's burgeoning social enterprise sector
 

Once upon a time two frogs fell into a bucket of milk. Both tried to jump out, but the sides were steep and slippery. Seeing little chance to escape, one frog gave up and sank. The other frog also had little hope, but kept trying. Eventually, its efforts turned some milk into butter and the frog could escape jumping out from hardened surface. The second frog in today’s reality could be compared to a social entrepreneur who keeps trying to make change where traditional methods of solving challenging social issues do not work.

Social entrepreneurship is not new in Russia. Its prototype was alive and well back in the 19th century through dozens of so-called ‘houses of industirousness’ founded by the father John Sergiev, canonized and known as St. John of Kronstadt. In the last decade Russia has accumulated rich experience in social initiatives. Business across the country implements hundreds of social programs, taking responsibility for the welfare of the society while social entrepreneurship has become more and more popular.

Since early 2013, RUSAL, a key player in the global aluminium market, has been working on a new corporate social initiative. In March 2013 Centers of innovation in the Social Sphere (CISS) were opened in the Krasnoyarsk, Sverdlovsk and Irkutsk regions. CISS provides a regional networking infrastructure for social entrepreneurs with the aim of raising awareness in the field and creating a public-private communication platform. CISS has been jointly developed by RUSAL and the Russian Agency of Strategic Initiatives. In April 2013, a Social Entrepreneurship School was launched by the CISS providing applicants with educational training.

The school offers courses in finance, law and business planning as well as courses about new business opportunities on both a regional and local level. Moreover, students can bring their draft projects and develop them into business plans at coaching sessions. The key project areas are education and leisure centres for children; tourism for the disabled; youth internet-portals and media; the reconstruction of historic buildings and monuments; energy efficiency; and clothing manufacturing for ex-imprisoned women. In six months the Centre provided training for 100 entrepreneurs.

The training of those engaged in business in the Social Entrepreneurship School is the first phase of RUSAL’s social entrepreneurship initiative. The second phase is the presentation of projects created by the School’s attendees. The third phase aims to support successful business leaders and monitor their activities accompanied with seed funding. The final goal is to create favorable conditions for the implementation of society-oriented business projects and, as a result, finding a solution for challenging social issues.

RUSAL focuses on attracting people with active entrepreneurship positions as well as business leaders and society-oriented NGOs in CISS to debate regional social issues and to look for creative ways to overcome them through the implementation and realization of social entrepreneurship projects.

The company’s goal is to introduce a set of successful cases of social entrepreneurship as a breakthrough in overcoming social issues. With this in mind, RUSAL is planning to work more closely with foreign partners to bring best global practices to Russia and share best Russian practices globally.
 

Both The Hershey Company and Cadbury maker, Mondelez International, say they have made siginficant progress in their moves towards a sustainable supply chain for palm oil.

Mondelez has achieved Roundtable for Sustainable Palm Oil (RSPO) coverage for 100% of the palm oil it bought in 2013 – two years ahead of schedule.

“Achieving 100% RSPO is an important milestone toward our long-term commitment to only buy palm oil that’s produced on legally held land, doesn’t lead to deforestation or loss of peat land, respects human rights, including land rights, and doesn’t use forced or child labour,” said Dave Brown, vp of Global Commodities and Strategic Sourcing. “We recognize the need to go further, so we’ve also challenged our palm oil suppliers to provide transparency on the levels of traceability in their palm oil supply chains. Knowing the sources of palm oil supplies is an essential first step to enable scrutiny and promote improvements in practice on the ground.”

In the first months of this year, Mondelez International will review results from suppliers and publish an action plan during the second quarter 2014 to give priority to supplies that meet the company’s sustainability principles, and eliminate supplies that do not, by 2020 at the latest.

In addition to achieving its commitment to source 100% mass balanced RSPO certified palm oil more than a year ahead of its original 2015 commitment, The Hershey Company has annouced it will also work with its suppliers to achieve 100% traceable and sustainably sourced palm oil by the end of 2014.

“The Hershey Company is committed to continuous improvement and transparency in our sustainable sourcing efforts,” said Frank Day, Vice President of Global Commodities. “Our move to source 100 percent traceable palm oil is the latest step forward in our efforts to ensure we are sourcing only sustainably grown palm oil that does not contribute to the destruction of wildlife habitat or negatively impact the environment.”

While The Hershey Company is a smaller consumer in the palm oil market, the additional step of 100 % traceability will assure that the palm oil in its supply chain is produced using the most rigorous sustainability practices. To achieve this, suppliers will be required to independently verify that sources do not contribute to deforestation or the destruction of wildlife habitat; do not clear high carbon stock forests; do not contribute to peat land expansion; nor operate in compliance with local laws and regulations.

In November, Hershey’s palm oil sourcing efforts were recognized in the World Wildlife Fund’s 2013 Palm Oil Buyers Scorecard, where Hershey scored 10 out of a possible 12 points with 12 being the highest score.
 

The market for breast milk substitutes is a highly contentious ethical area, especially for investors. The FTSE4Good criteria for the category – launched last year – is an attempt to build industry dialogue. Does it represent a giant leap or a just a baby step, asks Liz Jones

When it comes to ethical investment, breast milk substitutes (BMS) have been a contentious issue. Even defining what a BMS is can be problematic.

David Harris, director FTSE ESG, explains that for the past three decades industry’s definition of what constitutes a BMS product has been at odds with that of NGOs: “What are breast milk substitutes? Infant formula? Yes. But what about baby juices, baby cereal, and most controversial of all follow on milks? All of these products could be regarded as substitutes or supplements for breast milk, it depends how they are used. Some NGOs have set out that the infant formula industry created the follow on category to get around the provisions of the WHO Code.”

NGOs and the baby milk industry have been in conflict over the issue of breast milk substitute marketing for over 30 years. The difficulty therefore in establishing worthwhile collaborations between industry and NGOs around child nutrition “have been nigh on impossible and the cause of much frustration among major global health and development foundations”, says Harris.

Part of the sector’s controversy lies in the fact that it is a highly emotional category. In the past there has been questionable infant formula marketing in some countries which led to women buying formula they couldn’t afford, not making it up properly, using dirty water and some babies ultimately dying as a result.

Dominic Schofield, director of Multinutrient Supplements Initiative at Global Alliance for Improved Nutrition (GAIN), agrees. “There’s been a bad history. Companies haven’t met international standards for ethics. As an overlay on that there’s a tangle of ideological issues. People’s views differ – some see the need for a patronistic approach via government, others don’t. There has been a lot of effort and acrimony between all the interested stakeholders.”

The point of departure, he says, is that it is important to both promote and protect the need to breastfeed. But there are lots of issues that make it difficult for breastfeeding to be an option and on top of that there is the fact that alternatives to breastfeeding are promoted and that can have an impact on infant health. “Marketing needs to be limited so that there is no negative impact,” Schofield maintains.

The ongoing stand off on BMS has meant that for a long time no official body has been prepared to try and build any middle ground in fear of being shot down. That changed last year when FTSE stepped into the breach with a new set of criteria to identify best practice for companies and their approach to BMS marketing.

Setting standards
Most BMS companies work to the WHO code of practice. But as Harris points out, it is interpreted by NGO and companies in different ways. Similarly some governments implement it, some don’t. The basis for FTSE’s criteria is the contentious dilemma of what constitutes a BMS product. For FTSE it is infant formula and complimentary foods if marketed for babies under six months as well as follow on milk marketed to babies up to 12 months old. “ “Because there are different views, we have created a standard that many would view as going beyond the code especially in higher risk countries,” said Harris.

So far, only one company out of the big five manufacturers – Nestlé – has met the criteria – which has been independently verified by external third party agencies in four countries.

Janet Voûte, global head of public affairs at Nestlé emphasizes the company’s full support for the WHO code. “It is a sensitive area because you’re dealing with serious nutritional issues. Nestle is fully supportive of the 6 months breastfeeding line and we want to underline that. Breast milk is best. Infant formula is for women who can’t or choose not to breastfeed. You have to understand that the WHO code was issued to member states and what is regrettable from all sides is that fewer than 40 states enacted legislation. The challenge that has arisen from that is that there are various interpretations and that leads to confusion.”

Voûte believes that the FTSE4Good Index and the inclusion of their criteria and the transparent sharing is the beginning. “You do see an evolution in the dialogue and it’s improving. Ideally, FTSE4Good helps raise the industry standard. Other companies will apply for inclusion and standards will rise… However, it’s not an end in itself.”

Voûte believes that transparency is key to the FTSE4Good process. “It’s the only way forward,” she said.
It’s not an unusual process for Nestlé either. As a company, it is the way it now approaches business. For example, in the responsible sourcing of palm oil and the issue of child labour in the cocoa supply chain.

As a business, Nestlé convenes with shareholders including NGOs regularly to discuss issues and problems. It’s all to do with its vision of Shared Values. “We sit down together and talk about issues and their solutions,” she said.

A recent example of this was a meeting with Oxfam which led – in the last 6 months – to Nestlé signing up to the Women’s Empowerment Principles. “This is an example of where direct dialogue can give results and result in change,” said Voûte.

While many companies publish summaries of such verifications (like Apple, Gap and Nike on supply chain labour), most are loath to publish them ‘warts and all’. As part of the FTSE4Good criteria, verifications are published in full. “It’s a big step for a company to allow third party verification of their practices and then for it to be published in full,” said Harris.

This is being done to try and build trust and dialogue between parties on what the key issues are and how to make progress in this complex and difficult area.

While Nestlé has received inclusion on the index, the report does highlight grey areas where there is room for improvement. In Nestlé’s case, third tier distribution is an area flagged for improvement. Some supermarket promotional displays go against the code despite Nestlé trying to educate their distribution chain covering 10,000s of distributors and retailers. “It’s a massive job,” agrees Harris.

Changing attitudes
Harris does see attitudes changing. Indeed in late October 2013 FTSE4Good hosted a BMS workshop bringing together some child health and nutrition NGOs together with Nestlé for the first time. It was the first time they had sat down together. This was a direct result of Nestlé receiving FTSE4Good verification and winning inclusion to the index.

FTSE is in dialogue with all the major BMS manufacturers. The index is reviewed twice a year – the next time is next month (March 2014) - and while Harris can’t say anything, another BMS company is very close to securing inclusion.

More companies on the index is a must. Schofield comments: “More than one company has to get onto the index. Some companies have improved their practices and dialogue has opened up. FTSE has created a vehicle for engagement and that is good for everyone in the sector. However, the debate has got to move on from civil society versus industry. Hopefully once on the index, companies will feel the need to stay on it, their performance in these areas will need to be more predictable and that means that the criteria to act ethically can be strengthened.”

At the end of the day FTSE is a company that services the investment community and there is a limit to what FTSE can do to bring companies and NGOs together on this issue.

However Harris has high hopes for the future: “I’d love to see something similar to the Ethical Trading Initiative for the BMS market come out of this - where NGOs and industry work together and collectively decide on a verification process for their members.”

Harris maintains you can compare the situation to the fashion industry 15 years ago when it was beleaguered by supply chain labour standards and sweat shops.

“Progress was made once NGOs and retailers and fashion brands began talking and working together through such platforms as the ETI,” he explains.

Investor interest
Dominic Schofield says the FTSE4Good Index is an exploration; an alternative to a system, that has “provided a new opportunity for engagement”.

“It’s a huge contribution to create an environment where advances can be made in nutrition. From Gain’s perspective, not only does it raise industry standards but it raises the sector in the investor’s sights. It helps investors understand this dimension which is particularly important with the rise of interest in social impact investment.”

The index is “a pathway to transformation,” he says. “It’s one more tool in the kit and while not the be-all and end-all. It is the lever to change.” 

The £5.69m Guinness Alternative Energy C fund continued its top ranking amongst UK Registered funds over the past year to 31 December 2013 with a cumulative +67.62% performance. It nevertheless contrasted sharply with weak past three- and five-year performances at -18.59%/142nd and -18.71%/124th, respectively.

Sarasin Sustainable Equity USA P US$ fund retained its runners up spot from the previous period to 30 November 2013 with +43.55% against +34.10%/17th over three years. Kames Ethical Equity B Acc fund came third over one year (+37.37%), ranked fifth over three (+51.01%) and fourth over five years (+131.29%). The £68.32m Premier Ethical A Inc. fund moved up one spot to fourth from top over the past year with a marginally improved +36.57% performance against +57.61%/2nd over past three and an outstanding +110.33% over the past five years. SUNARES lagged the sector again with -36.42%/155th rank over the past year (-64.34% over three years).

For US Mutual funds, Firsthand Alternative Energy fund stole a march on its rivals again over the past one year with a +93.71% performance (-11.00%/199th over three years), followed by the $23.66m Guinness Atkinson Alternative Energy fund with +61.54% (though negative over three and five years at -21.27% and -17.97%, respectively) and the $323.58m Eventide Gilead N fund in third with +52.93% (+81.13% over three years and +213.43%/4th over five).

The sector’s bottom five funds lay in negative territory on the past one-year view: GuideStone Funds Extended-Dur Bond GS2 fund at -5.10% to GuideStone Funds Inflation Protected Bond GS4 at -8.64%. But the sector displayed the best peer group cumulative return (+100.79%) over the past five years.

MAP Clean Technology Fund I top ranked among European Funds with +146.13% over the past year and shaded LSF Asian Solar & Wind A1 fund at +145.80% (-15.35%/994th over past three). The €8.16m Incometric Global Valor B fund ranked fifth over the past year with +49.39% and has performed well over the last three years recording +55.56%/9th rank. SUNARES takes the wooden spoon in the sector again with -38.01% (out of 1,115 funds) and -63.27% over one- and three-year periods, but was positive over five (+15.35%).

The UK Individual Pensions sector displayed the best peer group average over one-year and three-year periods with +27.37% and +38.43%, respectively. Top ranked fund here over the past 12 months was Sanlam/Kames Ethical Equity 8 Pension fund with +38.67% versus +55.98%/11th over the past three years.

Every Wednesday at 4pm PST / 7pm EST (and every once in a while at other times) TriplePundit will take 45 minutes or so to chat with interesting leaders in the sustainable business movement. These chats are broadcast on our Google+ channel and embedded via YouTube right here on 3p.

The sharing economy is a movement of movements emerging from the grassroots up to solve today’s biggest challenges, which traditional institutions can't manage alone. New and exciting solutions are changing how we produce, consume, govern, and solve social problems. In the same vein, the maker movement, collaborative consumption, the solidarity economy, open source software, open government, and social enterprise are a few of the movements showing a way forward based on sharing. At the core of this societal turnaround is both modern and infinite wisdom – "that it’s only through sharing, cooperation, and contribution to the common good that it’s possible to create lives and a world worth having".

What do you know (or want to learn) about the "Sharing Economy?" On Wednesday, January 29th, TriplePundit’s Founder, Nick Aster, engaged in a conversation with Neal Gorenflo (Founder of Shareable) and Nicco Mele (Founder of EchoDitto). Click PLAY below to watch and learn!

About Neal Gorenflo

Neal is the co-founder and publisher of Shareable Magazine, a nonprofit online magazine about sharing. As a former market researcher, stock analyst, and Fortune 500 strategist, Neal is perhaps an unlikely voice for sharing. An epiphany in 2004 inspired Neal to leave the corporate world to help people share through Internet startups, publishing, grassroots organizing, and a circle of friends committed to the common good. Neal has become an expert on the sharing economy through entrepreneurship, research, writing, speaking, and as a avid practitioner. He has consulted with Institute for the Future, Sitra, and Lowe's Home Improvement, and has been featured by NBC Nightly News, Fast Company, Christian Science Monitor, Sunset Magazine, CBS Consumer Watch, and ABC 7 Live. He has recently spoken at SXSW, Sustainable Brands, SOCAP, and ShareNY. His recent writing is featured in YES! Magazine, 7x7 Magazine, The Urbanist, and the anthology Open Design Now. 

About Nicco Mele

Nicco is an entrepreneur, angel investor and consultant to Fortune 1000 companies – is one of America’s leading forecasters of business, politics, and culture in our fast-moving digital age. Nicco’s first book, The End of Big: How The Internet Makes David The New Goliath, published in 2013, explores the consequences of living in a socially-connected society, drawing upon his years of experience as an innovator in politics and technology. Since his early days as one of Esquire Magazine’s “Best and Brightest” in America, Nicco has been a sought-after innovator, media commentator, and speaker. He serves on a number of private and non-profit boards, including the Nieman Foundation for Journalism at Harvard and Breakthrough.tv. Nicco is also co-founder of the Massachusetts Poetry Festival.

The Production Tax Credit (PTC) expired on Dec. 31, and the wind industry is waiting to see if it will be extended, causing great financial uncertainty. The credit was extended on Jan. 1, 2013, for one year, but has been a source of contention in Congress. The uncertainty around the tax credit has made mid- and long-term planning in the renewable energy industry difficult because the tax credit has such a significant impact on the financial viability of projects. It has lapsed several times over the last 20 years and was extended at the last minute for 2013.

The PTC is a 2.3-cent per kilowatt-hour credit for electricity generated by wind, geothermal and closed-loop biomass projects for the first 10 years of operation.  It also credits 1.1 cents per kilowatt-hour of electricity for landfill gas, anaerobic digestion, hydroelectric, municipal solid waste, hydrokinetic power, tidal energy, wave energy and ocean thermal.

There was a boom in wind farm construction in late 2012, as developers pushed to complete projects because the future extension of the tax credit was unknown. Despite the extension of the tax credit into 2013, wind farm construction was relatively slow over the year because many projects were pushed through in 2012. During the first three quarters of 2013, 2,400 MW of wind capacity were under construction, according to the American Wind Energy Association. By comparison, there were 8,400 MW of wind capacity under construction in the first three quarters of 2012. Although the PTC was designed to help the industry, it has created boom and bust cycles and made planning difficult.

Is the PTC an important aspect of tax policy and should it be extended again?

What's Not to Love?

Opponents of this tax credit believe that renewable energy shouldn't get special treatment. If it isn't financially viable by now, it shouldn't create a tax burden for the American people. Although estimates vary, the extension of the PTC for 2013 could cost the taxpayers $6.1 billion over 10 years.

Because renewable energy projects were disproportionately prevalent in Texas, Iowa, North Dakota and Oklahoma last year, these states received a larger portion of the pie, according to a study by Institute of Energy Research. California and New York were the largest "net payers," paying in $195 million and $162 million more than they received.

The PTC originally credited developers 1.5 cents per kilowatt-hour between 1994 and 1999. The incentive has expired four times, creating boom and bust cycles in the industry. The current credit at 2.3 cents per kilowatt-hour keeps pace with inflation. Despite the increasing maturity of technology since 1994, the credit hasn't tapered off, as it has for the investment tax credit for solar energy. Some believe that the 2013 production tax credit was too generous and doesn't push the industry to innovate because there isn't an incentive for using new technology that has less known results.

Some opponents of the tax credit have concerns about wind energy in general. People often raise concerns of bird fatalities at public hearings about the potential siting of a new wind farm. Although wind turbine advances have decreased fatalities, wind turbines kill an estimated .27 birds per gigawatt-hour of electricity.

In some ways, the PTC has helped fill the void of a comprehensive energy policy that promotes energy diversity, economic security and low-carbon sources. The result is a patchwork of state policies, renewable portfolio standards, preferential tax treatment and tax credits.

The Good

Proponents say the tax credit is keeping energy costs down -- reducing carbon emissions and boosting the economy. The oil and gas industry has many subsidies of sorts, such as the ability to lease public lands for oil and gas drilling. A recent report by the U.S. Government Accountability Office states that royalty rates for oil and gas drilling on public lands are too low.

The fossil fuel industry already benefits from preferential treatment. The Congressional Joint Committee on Taxation estimated that three tax preferences provide $24 billion per decade in annual benefits to BP, Chevron, ConocoPhillips, ExxonMobil and Shell. These companies earned $70.5 billion in profits in the first nine months of 2013, thus it is a highly profitable industry. If the oil companies receive tax preference, why not the wind industry?

In addition, there are numerous external costs to fossil fuels, far fewer than renewable energy. Fracking has high external costs, and can contaminate drinking water, cause serious health problems, reduce productivity and put strain on public infrastructure. In some cases the oil and gas industry pays for these costs, and in many cases they don't. Society or government is burdened with the unpaid costs in the form of medical bills, infrastructure costs (water treatment facilities, roads, etc.),  collapse of fisheries (and related livelihoods), and loss of biodiversity.

Although wind turbines do kill birds, they are responsible for far fewer bird deaths than other forms of energy. Nuclear power plants kill .6 birds per GWh (2.2 times the deaths associated with wind power) and fossil fuel power plants kill 9.4 birds per GWh (38.4 times that of wind power).

Solutions

The boom and bust cycles of wind energy development need to end, as they make it particularly difficult for wind turbine research, development and manufacturing to get a strong foothold in the country. Stable, long-term policy would make this possible. Since the energy playing field is anything but level, with lots of external costs and subsidies for fossil fuels, a long-term and stable incentive would benefit everyone.

Slowly tapering off the tax credit over a decade or two according to an announced schedule would give developers, manufacturers, investors and utilities information to plan more than a year in advance. Unfortunately, the only option being discussed is a one-year extension of the tax credit or no credit at all. At least there is 6,000 to 10,000 MW of capacity in the pipeline, projects that broke ground in 2013 when the tax credit was still intact.