How Brenden Millstein's Carbon Lighthouse helps businesses conserve more energy.
There are all manner of approaches to 'green investing,' and the folks at
Carbon Lighthouse — recipients of an $80,000 Social Innovation Fellowship from the Center for Social Innovation at the Graduate School of Business — manage to combine two of them under the same roof. The for-profit portion of the company helps businesses conserve energy via a unique business model in which Carbon Lighthouse pays for all the up-front costs and then gets reimbursed over time from the money clients save. Separately, a nonprofit portion of Carbon Lighthouse is aimed at individuals who want to make sure that any money they spend on carbon offsets isn't wasted. Carbon Lighthouse CEO Brenden Millstein, Stanford MBA '10, explains how it all fits together.
Compared to other parts of the world, energy costs in the United States are relatively low, at least if you don’t consider externalities like climate change. Does this fact lessen the incentives for businesses to conserve energy?
Definitely. Utility bills in the U.S. might be, say, three bucks a square foot. But the salary of the people working in the building might be the equivalent of $300 a square foot. When you look at all of the steps that need to be taken to comprehensively optimize energy usage in a building, it ends up being an incredible amount of work for relatively little financial benefit.
What exactly is so hard about it?
If you're a building owner trying to reduce energy, right now you have to work with many different firms. There are companies that will make your lighting more efficient, and other companies that might install solar panels. Everything is totally fragmented.
How does Carbon Lighthouse do it?
We combine all of that into one easy package. We figure out absolutely everything that could possibly be done to reduce energy, and every single new system that would need to be installed to make that happen. And then we install it, and even pay for it up front. So, if we determine it will cost $200,000 to save a company $100,000 per year on energy, we will front them that $200,000. Then the company pays us back $80,000 a year, until they have repaid the $200,000.
Aren't there a lot of consultants who do something similar?
There are a lot of companies that do parts of what we do, but most of them are manufacturers; they make equipment. So when they send an engineer to a site, his or her job is to get enough data to justify the sale of a new piece of equipment. We try to achieve the maximum amount of savings with the least amount of equipment, since we're often paying for the equipment up front. Our interests and our clients' interests are totally aligned. We find that we’re able to get 90% or 95% of the savings that a manufacturer might get, but with literally one-tenth of the cost.
Carbon Lighthouse also works with carbon offsets, helping business and individuals buy offsets in an audited and verifiable way. Are there problems with the current system of buying offsets?
About $400 million is spent every year on voluntary carbon offsets, and there's a pretty good argument to be made that, unfortunately, the vast majority of that money is wasted. One big difficulty involves verification. Someone might say, 'I'll plant a forest in some country thousands of miles from here.' But it's very difficult to make sure that the forest was actually planted. Or to make sure it wasn't planted on land that previously had a forest that ended up being cut down. Or to make sure that the people planting the forest didn’t sell the same offset to 4,000 other people.
How do you help with this?
Not many people know this, but there is a mandatory cap-and-trade system in the U.S. It's called the Regional Greenhouse Gas Initiative, and it's comprised of nine northeastern states from Maine to New York. It was set up through a system of state laws, and it's binding on all of the power plants in the region. Because of that legal framework, this particular market is very well regulated, but the average consumer hasn't been able to participate in it. Carbon Lighthouse forms a bridge between this legally enforceable market and environmentally aware individuals and institutions so that when they buy carbon offsets, they can have confidence in the process. Most of the time right now it's a Wild West show.