14 Mar 2011  Research & Ideas

Water, Electricity, and Transportation:
Preparing for the Population Boom

By 2050, the world's cities will have to support 3 billion more inhabitants, mostly in developing countries, with crucial investments needed in three areas: water, energy, and transportation. Several of the planet's top city planning and environmental business experts gathered at Harvard Business School earlier this month to discuss available options.

 

By 2050, the Earth's population will likely exceed 9 billion people, up 30 percent from 6.9 billion today, according to projections from both the US Census Bureau and the United Nations. What's more, the population in the world's cities is expected to increase by 3 billion.

With those sobering numbers in mind, several of the planet's top city planning and environmental business experts gathered at Harvard Business School earlier this month to discuss how to support the inevitable population growth. The conference—titled "Investing in Cities of the 21st Century: Urbanization, Infrastructure, and Resources"—tackled three giant subjects: water, energy, and transportation. The conference was sponsored by Harvard Business School's Business and Environment Initiative and co-chaired by professors Rebecca M. Henderson, John D. Macomber, and Forest L. Reinhardt.

Water planning gets short shrift

In terms of urban planning, "water is often planned last and gets short shrift," said John Briscoe, a professor at the Harvard School of Engineering and Applied Sciences, who participated in a panel a session dedicated to water. "Water is absolutely the poor cousin of the utilities."

For starters, panelists talked about how the majority of the world's controlled water resources are dedicated to agriculture, leaving precious little for drinking, cooking, and bathing. (It's a subject complicated by climate change; wonky weather patterns have made it that much harder to predict rain and droughts.)

"There is a huge public need here, which is potentially a great opportunity for business" —Rebecca M. Henderson

"The next big revolution is going to have to happen in food production," said Anand Shah, CEO of Piramal Water Private Limited, a for-profit start-up that provides clean drinking water to more than 64,000 rural villagers in India. The company uses a franchise model in which local entrepreneurs filter and sell water to members of their community. "In India, 87 percent of water is used for agriculture, and another 6 percent is for industry."

The panelists also discussed the idea that relative to other utilities, water is very cheap in most cities, suggesting that charging more to city residents would make them realize that it is a valuable—and not infinite—resource. The possibility of profit would also encourage more participation from the private sector.

This raised the question of how to persuade urban residents that price increases might be necessary to support the burgeoning population—and how to make them understand that public-private partnerships might make sense to expedite allocation.

"There has to be someone at the top who says, ‘This will be good for the city‘—and who will make sure it isn't corrupt," said Jaime Augusto Zobel de Ayala (HBS MBA 1987), chairman and CEO of Ayala Corporation, one of the largest business conglomerates in the Philippines, a nation that recently started relying on public-private partnerships for water filtration and distribution.

Ayala's public utility subsidiary, Manila Water Company, was awarded the operation of the privatized water system for the East Zone of metro Manila. He said it wasn't difficult to warm residents to the idea of privatization because the public water supply had previously been damaged by the effects of El Niño.

"There wasn't much dispute because things were terrible," he said, adding that many poor residents—who used to have to buy water from the back of a truck—are now paying 10 times less for water than they did before the private sector got involved.

"There is a huge public need here, which is potentially a great opportunity for business," said professor Rebecca Henderson, about water research. "It is one of the great innovation frontiers."

Energy—our buildings are wasting it

In a panel on energy entrepreneurship and demand management, moderated by Professor Forest Reinhardt, experts focused on two main problems: buildings in general are far too inefficient, and people in general are clueless about their individual electricity usage. The sole investor on the panel, Craig Huff (HBS MBA 1993), co-CEO and co-founder of Reservoir Capital Group, said that rather than focusing on brand-new energy sources, his firm often focuses on companies that make current energy sources more efficient.

Urban buildings consume 40 percent of the world's electricity, said Andreas Schierenbeck (HBS AMP 176, 2009), president of Siemens Industry's Building Technologies Division. Fortunately, for most of those buildings, there's the potential to cut down electricity usage by up to 75 percent via various readily available energy-saving measures, noted Philippe Delorme, EVP of strategy and innovation at Schneider Electric, which is based in France, but does a third of its business in Brazil, Russia, India, and China. Unfortunately, it's hard to persuade people to institute those energy-saving measures.

"Human beings don't like to change, and everything involving energy management does imply the need to change," Delorme said, adding that electricity demand will double in 20 years if we maintain status quo practices.

This raised an important question: "How do we connect the energy consumers with a value proposition that makes it worth their while?" asked Gregg Dixon, SVP of marketing at EnerNOC USA, which helps large organizations in the US, Canada, and the United Kingdom track their electricity use.

"Human beings don't like to change, and everything involving energy management does imply the need to change" —Philippe Delorme

Dixon noted that while many consumers would jump at the chance to save 25 percent on their monthly mortgages, even if it meant paying some financing fees up front, they seem less apt to invest in energy-saving measures that will save them money in the long run, such as compact fluorescent light bulbs, air-sealing services, and tools that help customers measure energy expenditures.

Schierenbeck supposed that electricity customers might be more apt to conserve energy if their utility bills reflected exactly how they were using that energy from month to month—giving them a better idea of how and where they could save money. "Right now, people can't tell you where they're expending energy but they can tell you what their monthly bill is," he said.

Delorme agreed. "We don't know how much we spend because it's not visible enough," he said.

Moderator John Macomber noted a general need for entrepreneurial funding for start-ups that cater to greener cities. "The need is huge, the demand is huge, and you have to partner."

Transportation—making public transportation worth our while

The transportation panel kicked off with a presentation by Liu Thai-Ker, an urban architect and city planner who helped plan the oft-praised public transportation system in Singapore. The city encourages use of its system by keeping rider fees low, discourages individual automobile purchases by charging high ownership taxes, and keeps the trains running on time through public-private partnerships. Some 65-70 percent of city residents ride public transportation, he said, and while the city's population has doubled since 1970, it does not look congested. "In Singapore, we always plan for 100 years of growth."

US particpants at the conference acknowledged that the Americans might do well to follow in Singapore's footsteps. "We are a long way from having anything you'd call a sustainable urban transportation system in the United States," said Tyler Duvall, associate principal in the Washington office of McKinsey & Company. "Incentives in urban transportation are exceptionally weak."

A conference attendee from Seattle noted that bus fares in his city are higher during rush hour than at any other time—which, he said, only discourages him from taking the bus to work.

Another panelist noted that while public trains are important to any large city's traffic ecosystem, they're only one part. "It doesn't make sense just to move people from station to station," said Fabienne Herlaut (HBS MBA 1984), president of Ecomobilité, a Parisian venture fund that focuses on transportation start-ups. "You don't spend the night in a station. You have to provide transportation from door to door."

Paris has seen success with its self-service bike rental system, Vélib', which features thousands of bicycles and cycle racks all over the city. Subscribers pick up a bike close to their point of departure and return it to a rack closest to their destination. Herlaut is bullish on electric bikes; Ecomobilité recently funded the company Urban-Cab, an electric bike courier and taxi service.

As for Singapore, Liu said the country would like to do more to encourage bike riding, but there's an inherent humidity problem, especially for women. "Once on the bicycle, all the makeup just melts off their faces," he said.

About the author

Carmen Nobel is a senior editor for HBS Working Knowledge.

Comments

    • Anonymous

    Excellent summary of a conference exploring social imperatives which MUST be assigned/embraced with immediacy. One concern, regarding topics discussed in the article: the for-profit approach to public water supply seems fraught with risk to public interest. Is "fresh air" next!?

     
     
     
    • Anonymous

    What about health ?

     
     
     
    • Sanford Berg
    • Distinguished Service Professor--Economics, University of Florida

    Since the time frame for most infrastructure projects exceeds the length of the election cycle, politicians tend to relegate expensive projects to the next administration. Furthermore, both public and private infrastructure operators require oversight: globally, the creation of (relatively) independent regulatory commissions has been one way to reduce the role of politics. See www.regulationbodyofknowledge.org for a vast amount of material on infrastructure management and reform. Municipalities introduce an entirely new set of governance issues.

     
     
     
    • Atul Kulkarni
    • Prop, Atul Infomedia

    Staying in Urban infrastructure, one must understand he is living in a "subsidized" world. The administration, which is controlled by Politician, always (try !) to create comfortable atmosphere, with public cost. If urban population starts thinking about their real rights of getting water, energy, transportation, they will start managing these resources. Because private participation in these area will kill the entire structure what we have today. Privatization is more dangerous than that of Govt. supply, especially in India.

     
     
     
    • RS Arun Kumar
    • CEO, Energy and Environment Resource Group Inc.

    I would like to focus my attention to water, and more specifically sanitation. If "Water is absolutely the poor cousin of the utilities" as per John Briscoe, then what about sanitation.

    Flushing of toilets, bathing and washing takes about 70% of the water demand posed by an individual. If there's proper management of this quantum of water, surely the water supply issue could reduce by a significant percent.

    Yes, the water sector is big business, and in the same breath, management of "big business" is enormous.

    eERG Inc. is a social enterprise working in South India, trying to fill this gap by providing pre-fabricated on-site treatment systems for individuals so that they are equipped to manage their own waste water. Thank you

     
     
     
    • Anonymous

    Now that we have just elected a new mayor in Kampala, the conference has a lot for Uganda to learn from in order to solve this social imperatives for our people. Kampala is a city that is full of rubbish/dusty, pot holed, blocked roads for a few, with a lack of running water in most areas, high cost of energy, traffic congestion and high transport costs, unemployment, corruption, poor infrastructure development, and political infighting. The new administration should avoid political interference and work for the people, while the government should check on corruption and avoid double standards.

     
     
     
    • Paul Minett
    • Managing Director, Trip Convergence Ltd

    I was disappointed with the brevity of this report. Surely with those experts doing all that thinking, there would be much more output. So, is there going to be a bigger more comprehensive report of the proceedings? What is HBS doing with the output of the discussions? How do we access it?

     
     
     
    • Yoon Kim
    • Graduate Student (Finance), Queen's University

    Before making any comment here, I'd like to note that view expressed below is my personal view only.

    Public infrastructures such as energy, transportation and water utilities often require relatively a heavy capital investment, for which, depending on the degree and scope of development, federal, state or/and local/municipal levels of the government usually get involved (at least in the beginning phase of a new development in the area).

    Once the government/public-driven investment is made using, likely, "tax payers' fund", it would create a government-owned enterprise which then would likely be regulated by the government as its share-holder or a third party like a regulator which may be independent of the government. As one can see from here, it may be that, at first infrastructures are built using tax payer's money and then it is operated and maintained using "rate payers' fund" -- there is a transition from "tax payer" to "rate payer" as the infrastructure gets developed and established.

    That being said as above, I'd like to note three things - Cost Responsibility/Allocation (Equity), Governance and Socioeconomic Influence/Effects:

    1. Cost Responsibility/Allocation (Equity): While most of tax payers and rate payers are usually overlapped with each other, they are "not in sync", hence there may be (cross) cost subsidy issue between the two kinds of payers from an economical perspective in terms of fairness and (true) cost responsbility and cost allocation.

    2. Governance: If that enterprise/corporation is owned by government and/or is a monopoly or its-like in the market, there would be likely a regulation (backed by legislations/statutes) to govern/control the company to protect the public interest. Because of this (unique) environment comparing to other private industries/sectors, the corporate governance in infrastructures is quite different from others and is often more complex as it has to consider not only shareholders and but also "the public interest".

    3. Socioeconomic Influence/Effects: As, again, the company (utilities and infrastructure industry in general) often has to factor the public interest into consideration, it needs to consider, for example, "green initiatives" such as carbon foot print reduction and "sustainable development" like renewable generators (bio-, wind, solar...etc.).

    In a sum, my view is that, before getting into discussion whether public infrastructure should be privatized entirely or partially or whether it is "net benefit/loss" in terms of business opportunity, it may be worthwhile to approach this by observing and assessing from multiple angles/perspectives including, but not limited to, economic efficiency, equity, governance/regulation (the public interest) and socioeconomic factors.

     
     
     
    • Anonymous

    Time and again we seem to think of Privatization as a solution for some of the public issues. Privatization is just a process on what are motivators for change. In Privatization it is the profit driven culture which tries to see how to maximize my economic activity.

    What would be required for the burgeoning population is going to be change in the Behavior and the consumption patterns, the burden of development is always in increased consumption?

    However, leap frogging changes are going to be in the conservation and reuse technology and changing the way we consume, use, re-use our resources and develop alternative resources not necessarily in the just in consuming more and moving the distribution from public to private.

    Hope there will be thought leaders and researches (both behavioural and scientific to address these issues) who will offer the incremental solutions, sure there will not be any silver bullet which will address, however will need a many incremental changes and solutions.

     
     
     
    • Peter Kieran
    • President, CPCS

    The introduction talk about the incredible growth of urban centers in the next 40 years but the vast majority of this growth will be in developing countries, not Seattle or Singapore. We need practical solutions to the real problems of the mega cities such as Lagos and the hundreds of "town/cities" that will soon have populations of more than 1 million with virtually no public infrastructure outside of completely congested major roads.

     
     
     
    • Milton Bevington
    • Lecturer, Business Environment and Public Policy, U. Mass Boston, College of Management

    Working with over 20 of the world's largest cities, members of the C40 Climate Leadership Group, I saw firsthand the best efforts of governments and the private sector to invest in building energy efficiency thwarted by outdated financing models. By some reckoning, there hasn't been a truly new loan product developed for homeowners, landlords, and commerical building owners since the home equity loan; and that has to change if wasted energy is going to be harvested. There's a role for business researchers, especially in finance, considering real estate finance in new ways that monetize energy savings and quantify the risk of securing loans with energy savings rather than asset value. There is an absurd Catch-22 at play in a world where real estate declines in value because operating costs are too high, but can't obtain financing to improve financial performance because its market value is depressed.

    Much has changed since John Macomber and I were MBA students many years ago. Then, he was in construction and I retrofitted inefficient buildings. Today it gives me great satisfaction to sponsor eager student teams at leading MBA programs researching new ways to tap efficiency in the built environment, but students appear to be leading their teachers in many respects. I applaud the new initiative at HBS and sincerely hope that it will lead to breakthrough thinking about solutions to these pressing issues. Because the sustainable economy does not yet exist, someone still has to invent it; and I have heard said that the most important decision a scientist makes is the choice of what to study.

     
     
     
    • Bosun Fatogun
    • Chief Idea Architect, Fatcom Alternate Systems

    Good summary and good thoughts, there is also a need for focus o developing and third world economies, if the west and developed economies are able to solve the problems of 2050, and not a focus on how to help poor economies understand the needs, then they will have a bigger task in there hands on controlling border movement, and setting aside funds for 3rd world countries, which might extinguish the gains of today's planning

     
     
     
    • Ron Dembo
    • CEO and Founder, Zerofootprint

    Does the more detailed report touch on benchmarking?

    Benchmarking is the process of comparing your performance metrics to industry best practice and/or best practices of other industries. The primary goal is to make improvements that lead to doing things better, faster and cheaper.

    Benchmarking involves identifying the best performers and comparing your results to theirs in order to learn how well the best in class perform and, more importantly, how they do it. Almost every commercial firm routinely uses benchmarking to guide its practice.

    Most governments today agree that global warming is a huge challenge, with a potential for disastrous consequences if we don't act. They also agree that our use of water and energy needs to be more efficient and needs to have less of an environmental impact.

    Our homes and city buildings and the way we move between them are a big part of the problem and represent 82.3% of the environmental footprint of the Greater Toronto Area.

    A recently released report "The Living City Report Card 2011" (http://bit.ly/zfpmw01) put out jointly by Greening Greater Toronto an initiative of the Greater Toronto CivicAction Alliance (CivicAction) and the Toronto and Region Conservation Authority (TRCA) indicates that the combination of homes and buildings generate 43.4% of the Greater Toronto Area (GTA) CO2-e emissions. When you add the burning of diesel and gasoline for transportation within the GTA, add another 38.9% to the total.

    • and yet we don't know how cities compare to each other, or how buildings and homes compare individually with one another. There are no benchmarks.

    Do you know if you use a 'normal' or 'large' amount of electricity in your daily life? What is a normal amount? What is normal in Canada? What is normal in the U.S.? What is normal in Europe? How big is the difference? Why is there a difference? Do you use more water than the average in person your city? Do you throw out much more garbage? Does your home or office require more energy than its neighbours to operate?

    These are the first questions a business would ask if it were given the task of becoming more environmentally efficient. Yet, with all the discussion on global warming, we have no benchmarks to guide us to a more efficient lifestyle.

    When Zerofootprint benchmarked schools, we found some with energy footprints per square meter that were 30 times worse than others in the same district. We have also seen new buildings that have a LEED Gold environmental building certification underperform buildings that are older and have no such rating. Guess what a manager in a Fortune 500 company would do with such information? (http://bit.ly/zfpmw02)

    If we are to deal effectively with energy and water and their environmental impact on global warming then we need universal benchmarking to give people the tools they need to guide their efforts.

    We propose starting with buildings for two reasons -- the wealth of utility/energy data available and the fact that they are such a big part of the problem. And we propose taking an 80/20 approach.

    Let's get 80% of the way there on all buildings rather than 100% of the way on just a few buildings. This will enable us to achieve massive coverage quickly and cheaply and dive into greater detail (the last 20%) when and where it is warranted.

    Something as simple as universal benchmarking could have a major effect on behaviour. And since reducing energy consumption is synonymous with reducing cost, it could have a major effect on cost as well.

    http://bit.ly/zfpmw01

    http://bit.ly/zfpmw02

    For a quick overview - http://bit.ly/zfpmw03

    For the full white paper - http://bit.ly/zfpmw04

     
     
     
    • rmsimedevac

    RMSI is a company specialised in medical evacuation. RMSI is working for amongst others United Nations and have a lot of experience in the toughest environments around the world.

     
     
     
    • Swapna Vora
    • Writer

    Over population is a major issue of our time, if not the main one. If we tackle it, some of these problems will decrease.

     
     
     
    • Vini Floris, MPA '96
    • Sr. Consultant, ERM

    Clean water and clean energy availability are two key challenges for the next generations to come. Global warming would have tremendous negative impacts if we don't come up with the right policies to stimulate sustainable practices. I am disappointed that I did not hear about this event before. Perhaps I could added to the school's mailing list.

     
     
     
    • Lucas Hoogerbrugge
    • Intern, Bosch

    I think the problem is being deflected from its original source. The article focus mainly on the population growth and how to 'repair' its consequences.

    Measures should be adopted on the CONSUME, rather than on efficiency measures.

    I know that putting efforts on consume is hard, because it is as cultural as sports, and how we just live, but on my understanding, is one of the main reasons on the lack of sustainability nowadays.

    The problem IS NOT overpopulation, all the population in the world would fit on Texas, the problem is how the population consume.

     
     
     
    • Toronto Airport Taxi
    • Toronto Airport Taxi

    The giant of population is a big challenge for global think tanks and policy makers. Our world is not prepared to meat transportation, water, energy and food requirements of increasing population. A systematic control over population is the solution to prevent whole world from hunger and social evils.

    A famous population quote by Garrett Hardin : "A finite world can support only a finite population; therefore, population growth must eventually equal zero".

    Regards, http://goo.gl/GY2UB