15 November 2022 |

Demand better


The supply side gets all the love. I’m not talking about historic economic policy in the U.S. No, I’m thinking about the climate and climate tech spaces as a whole. The supply side is where a lot of innovation is happening. It’s where dollars are flowing. It’s where people want to work. What am I rambling on about? Well, whether it’s developing new means of generating electricity, devising new fuels for transportation, or inventing new ways of producing food, a lot of the focus in climate tech is on where things come from or how they’re produced.

At the same time, the demand side offers some of the lowest-hanging fruit for mitigating climate change. Nor am I talking about degrowth, an intentional strategy to downsize the economy. For one high-level example of what I am talking about? When analyzing viable net-zero courses for Europe, McKinsey determined energy efficiency alone could unlock 17% of needed emissions reductions through 2030.

From my vantage point, the demand side – i.e., introducing more efficiencies or changing consumption patterns – should demand better from analysts (including yours truly), investors, and policymakers. However, I can see why it’s not always priority number one for venture capital or founders with big (economic) ambitions. While efficiency can be cost-effective, it’s usually distributed. It’s hard to build a winner-take-all business in something like building energy efficiency.

For another corollary, consider a cargo ship’s emissions. While the shipping industry in some places has cleaned up its act somewhat – eliminating sulfur emissions from past fuel sources, for instance – most ships still burn pretty crude fuels. What sounds easier and faster? Developing a new zero-carbon fuel source and convincing 10% of the world’s shipping industry to use it in their ships? Or developing technology that makes shipping routes 10% more efficient (also saving operators fuel costs) and pricing it attractively?

Not easy to move that much mass with a new low-carbon fuel! (Photo credit to Ian Taylor)

None of this is to discredit vital work to make hydrogen, ammonia, methanol, or batteries viable fuel sources for shipping (fuel source used loosely when referring to batteries). But it makes me wonder where else there are impactful businesses waiting to be born on the demand-side. Let’s investigate further.

Building the baseline

If you bring up the demand side of climate tech, most folks probably think of energy efficiency in buildings. That’s the first place my mind goes, too. And that impulse is well founded; buildings use some 40% of the world’s energy consumption (not electricity!) and account for about a third of all greenhouse gas emissions (a figure that continues to grow). If you want to start a climate tech company tomorrow and are targeting significant emissions abatement, building energy efficiency (or efficiency in general) is a good place to go.

Wonder how much energy these buildings in Dubai use for AC? (Photo credit to ZQ Lee)

While not sexy, I’d be wrong to claim this area gets ignored entirely. Whether from a tech or policy lens, plenty of people are thinking about it. AeroShield, which we covered on Sunday, is pioneering new window-replacement technology to reduce heat and cooling loss in homes. Other recently-funded solutions include Calumino’s thermal sensor technology, which can help spot building heat leaks. On the incentives front, WattCarbon wants to apply the logic of carbon markets to reduce emissions in buildings

And on the policy side, as Europe plunged into an energy crisis this year, policymakers got busy punishing wasteful energy consumers. France led the way with penalties on shops that use AC without closing their doors (seems like common knowledge, but hey). Then select countries, like Spain, set ceilings on how low customers could lower their AC.

Still, the most successful demand-side climate technologies rarely come up in climate conversations. An anecdotal point I recently heard and appreciated is that Nest is one of the most successful consumer climate tech companies from the past decade. Nest’s founder probably agrees (or would at least enjoy the accolade); here’s what he wrote in an article last year:

…at Nest, we knew that average households wasted a huge chunk of energy when the thermostats were left set at the same temperature all day. We also knew that the last thing busy people (and everyone is a busy person) needs is to remember to set or reset their thermostat based on weather patterns, time of day, or energy-consumption spikes.

There are two critical points here. One is that something as unassuming as a smart thermostat can be an awesome demand-side technology. The other is that the best technologies, demand-side or not, will be almost invisible to people or at least minimally disruptive. Nest isn’t perfect on this front (not everyone loves the experience of ceding control), but it’s a step in the right direction. 

The demand side of everything else

There’s significant demand-side opportunity in every area of society that climate tech touches, too. Your car is a great example. With the advent of EVs in the U.S., it feels like the fuel economy focus of my youth has gone by the wayside. There’s much more focus now on supply (the car’s fuel source) than on demand (fuel efficiency).

As a bit of history, it took a significant catalyst (as it often does) before anyone cared about fuel efficiency in vehicles in the U.S. The catalyst wasn’t climate change; it was the 1970s energy and oil crisis. Before that, oil was always pretty cheap, so there wasn’t a huge incentive or consumer demand for more fuel-efficient cars. Once gas prices went up? Consumers cared. The first spike in the below chart from the EPA highlights a meteoric increase in fuel economy in response to gas shortages.

Chart via the EPA (link to report here)

As good as it is that EV adoption is taking off in the U.S., the modal consumers’ next car will probably still have an internal combustion engine. Companies and regulators shouldn’t take their foot off the gas on fuel efficiency, so to speak; there’s still a lot of abatement potential in fuel economy. 

Beyond typical demand-side conversations, food also strikes me as an interesting point of focus. Investors poured massive amounts of money into alternative meats in recent years. At the same time, an inane amount of food is wasted, especially in the U.S. 14% of people in the world could enjoy a serving of strawberries from the strawberries that go to waste in California annually alone. By some estimates, eliminating all food waste would reduce global greenhouse gas emissions by ~5+%.

Finding ways to reduce food waste may be easier than convincing consumers to forgo meat. I’m not saying alternative meat or going vegan = fighting the wrong fight. I’m saying what ‘palliative’ measures can be powerful, too. 

The net-net

As I noted concerning fuel economy, it often takes a crisis to change consumer behavior or to spur innovation. The energy crisis in Europe currently is another excellent example; consumers are responding and drastically reducing their energy use. Incredible what a catalyst like “spite Putin” can do for energy efficiency! 

Climate change should be as good a catalyst as any to get folks thinking about efficiency. But even folks like myself who think about this stuff all the time end up trans-fixed by supply-side silver bullets at the expense of the demand-side. As much as climate tech needs more hardware startups, it also needs more demand-side startups. And as much as we need more deep tech founders, we also need more technicians who weatherize homes and install insulation.