Climate change is a potentially existential threat. Since there is no global authority to tax me, or Razorhorse, for our carbon footprint, we do it voluntarily through carbon offsets from TerraPass. I would urge everyone to do the same; offsetting your carbon footprint doesn’t cost as much as you may think.
In this multi-part blog “explainer,” I’m going to do my best to lay out the problem of climate change, put it in context, and share my perspective on the path moving forward. I am by no means a climate expert, but I am a Rational Optimist.
Climate change is both the biggest challenge and biggest opportunity for generations to come. The opportunity is to lead the way in building smarter systems with software, rebuilding our energy infrastructure, and remaking our energy production and consumption across the planet.
How we will do that, and whether we can do it in time to stave off the worst outcomes of climate change is unknown; but, I have confidence that our entrepreneurs will innovate, invent, and build an entirely new energy ecosystem.
Innovator’s Dilemma on a Global Scale
The major challenge is overcoming the resistance from incumbents in the energy industry and nation states. This is an “Innovator’s Dilemma” at a global scale, but unlike tech incumbents, which are constantly replaced through the free market process of creative destruction, nation states wage wars to protect their economic interests.
For that reason, entrepreneurs and inventors can’t do it alone.
We are seeing a generational change in corporate governance with ESG (environment, society and governance), where corporations are finding it necessary to consider the interests of society as part of their business model. This is a positive shift, but because it is largely voluntary, change will be slow.
Tragedy of the Commons
I was trained in economics in my undergraduate studies where I learned about the “tragedy of the commons” and “externalities”. Stated simply, the “commons” refers to land or property that no one owns. With no owner, no one has an incentive to take care of the commons, and as a result, they are destroyed. Letting your livestock graze on the commons is an example of an externality.
For an economist, the way to solve this tragedy is to tax users of the commons for the externalities they create. For the shepherd, a tax or fee for grazing rights would cause shepherds to consider alternatives to the commons to feed their flock. If no better alternative existed, the shepherd would pay the tax which could then be redeployed to replenish the resource. The tax would also serve to moderate grazing making it sustainable. This elegant solution creates a market force that sustains the commons.
Razorhorse’s Virtual Model
At Razorhorse, we have been completely virtual since 2011. Today, we have nearly 50 people on our team, but nobody commutes to an office. We fly when deals require us to, or when we need to get together for planning and team building, but we have been doing M&A deals for over a decade virtually – long before COVID taught the world how to operate on video conference calls.
There is no global body that can levy a tax on coal burning power plants in West Virginia, or on companies deforesting the Brazilian rainforest. So, for years, Razorhorse has bought carbon offsets from TerraPass to offset the company’s carbon footprint. Since we operate on a virtual model, we account for the energy consumption of each member of our team in their personal lives as well. After all, in a virtual model, people work from home at all hours of the day. Their computer, iPhone, and the air conditioner or heater are part of our carbon footprint.
I rarely drive, and when I do, I drive a Tesla. That might sound very green, but not the way I drive it. I’m enamored with the ability to go zero to 60 miles per hour in under two seconds! My wife drives an SUV, and the air conditioning is constantly blasting in our home in the 100°F (38°C) Texas summer heat. We’ve accounted for all these costs, and consciously make an effort to manage our carbon footprint both personally and professionally.