How Brown Companies Can Break Out of the Emissions Vicious Cycle and Get Green Funding

Recent research found that green investing could push polluters to emit more greenhouse gases, while the average brown firm produces 261 times the emissions of the average green firm.

What does that mean? If a brown firm change emissions in either direction by just 1 or 2%, the impact would be more significant than a green one reducing its emissions by, say, 100%.

Author Kelly Shue, professor of finance at the Yale School of Management (SOM), and Samuel Hartzmark of the Carroll School of Management at Boston College argue that the widely adopted approach to sustainable investment may be doing more harm than good by forcing heavily polluting (or brown) firms toward higher greenhouse gas emissions.

The strategy is flawed because of its underlying premise: To incentivize firms to reduce emissions by increasing the cost of capital for brown companies. But when you punish brown firms, they become more short-term in their thinking. 

As a result, those starved of funds will double down on existing and often highly polluting production methods to generate revenues quickly to avoid going out of business. They don’t have the breathing room to innovate or invest in new, greener technologies. Simply put, they pollute more when they’re punished. 

Meanwhile, rewarding already-green firms has a little environmental impact — mostly because they’re in industries with close-to-zero emissions (e.g., insurance, healthcare, and financial services.)

The researchers also found that when green firms experience a shift in their capital costs, their emissions don’t change substantially. On the other hand, brown ones show a significant increase in their emissions after an increase in their capital costs.

We have a chicken-and-egg problem. How do we break this cycle?

Of course, the longer-term solution is to change investors’ understanding of their decisions. But can brown firms become more proactive to get out of the “high capital cost —> use existing, polluting production method —> higher capital cost” vicious cycle?

Electrifying industrial equipment isn’t just good for the environment. It also delivers many benefits, including substantial long-term cost-saving, a more predictable budget, adherence to increasingly-stringent emissions standards, improved efficiency, and reduced routine maintenance and operating noise. 

There are financial and operational incentives for brown firms to electrify their equipment. But they need to get over the hump — break out of the cycle of being unable to get low-cost capital to invest in new, green technologies.

So why is greening the industrial sector so expensive?

With today’s electrification solutions, firms must purchase new electrified machines, which are expensive and require new infrastructure or processes to accommodate their use. Many of them are developed to accommodate existing battery solutions instead of having the power supply designed to meet the need of the application. Moreover, companies often need to change their processes and hire specialists to achieve successful adoption.

But without extensive availability of low-cost capital, it’s immensely challenging to undergo such wholesale upgrade. Instead of staring at the hurdle, let’s ask, “What if”…

What if we could start with a low-cost way to reduce emissions from existing fossil fuel-powered equipment by retrofitting these machines with a modular and adaptable battery solution?

This concept seems simple, so why hasn’t anyone done anything remotely close? Today’s custom-built, monolithic battery packs are very costly to develop. Equipment is built around available solutions with little flexibility to adapt to new requirements. 

Software-defined batteries (SDBs) will turn the table.

Supported by the Tanktwo Battery Operating System (TBOS), our SDB solutions are modular packs operators can stack like Lego blocks to form batteries of any size and deliver any power level without cabling between units.

Operators can simply remove the existing internal combustion engine (ICE) and put our battery units (e.g., the Tanktwo Smartpak) into the same space with minimal changes to other equipment parts.

SDBs can charge and discharge at any voltage from 4V to 400V and use cells of any chemistry — providing maximum flexibility and future-proofing operations. Plus, they provide operators with the agility to run multiple types of equipment with a streamlined inventory while mitigating the impact of supply chain fluctuations.

Retrofitting existing equipment instead of upgrading to completely new machinery also minimizes the impact on existing processes to streamline and encourage adoption. Companies don’t have to spend a lot of time and resources on retooling their facilities or retraining their personnel.

The retrofitting approach can help eliminate over 90% of costs associated with new equipment and user adoption. Our technology allows operators to adapt their electrification strategy to the environment for which the equipment is built and the processes in which workers are trained.

TBOS and SDBs put the power in the hands of brown firms to break the cycle. When they demonstrate the results of their sustainability initiatives, they’ll be more likely to get funding to further their efforts and change the conversion of electrification in the industrial sector.