Using smart business strategy to counteract global climate change

Karl Ulrich cares about the environment. He bikes to and from his Narberth home every weekday, rain or shine, clocking eight miles each way. But Ulrich, a Wharton professor of operations and information management, also logs plenty of miles on his pickup truck driving to Vermont, where he is building a cabin. As an environmentalist, Ulrich doesn’t feel good about that. But since he’s also a capitalist who believes in markets, the business world is where he looked to find a way to reduce the impact of his driving.

In the fall of 2004, Ulrich challenged his Wharton class to come up with an affordable carbon offset for everyday drivers, loaning them $5,000 of his own money to get them started. The result was TerraPass, a San-Francisco based company that will sell you a “pass” to balance your CO2 emissions.

Here’s how it works. You, the driver with a conscience, type the specifics of your car into the TerraPass web site’s emissions calculator, which tells you just how guilty you should feel and attaches a dollar figure. If you drive a Toyota Prius hybrid 12,000 miles a year, for example, you’re putting out about 4,000 lbs of CO2 annually and your pass will cost you $29.95. If you park a Lincoln Navigator in your driveway and drive the same amount, your annual carbon footprint climbs to 15,000 lbs and you’ll have to pony up $79.95 to wipe your conscience clean. For the money you get a cool bumper sticker and a decal. TerraPass in turn uses your cash to fund clean energy projects like wind farms.

“You should let people do what they want as long as they’re willing to pay for their freedom,” says Ulrich. “It’s the same idea behind the Kyoto protocols. This is Kyoto for commuters.”

And commuters, it seems—or at least those in the educated, affluent demographic TerraPass targets—are willing to make a modest financial sacrifice to feel better about themselves and their impact on the planet. In its first year TerraPass attracted 1,000 members. Now, at the end of year two, it’s at around 30,000.

It’s those numbers, says Ulrich, that make TerraPass a viable concept. “We take the 30,000 people like you and pool all the money together, and as an industry player in financial markets we go in with that capital and invest it in renewable energy,” he says. “You’d have a hard time doing it on your own. We get a lot of attention because we have large transactions.”

When looking for projects to fund, the company (CEO Tom Arnold is an ’05 Wharton MBA grad) looks at several criteria. “We look for the biggest impact for the dollar in greenhouse gas emission reduction. We look for transparency, so we can clearly observe the benefits and we like projects that are easy to explain to our members, like wind and farm methane,” says Ulrich. A good example, he says, is Garwin McNeilus Wind Farm in Dodge Center, Minnesota, which supplies electricity to people in a broad swathe of western states. In the last year TerraPass has purchased credits for nearly 1,800 tons of CO2 from the McNeilus Wind Farm, equivalent to the amount of carbon emitted by about 400 mid-size cars in a year.

Though TerraPass has grown in the last two years, it’s still “fairly lean and mean,” says Ulrich, with four senior management executives and four office administrators. The product list has grown to include flight passes—which you can purchase at the click of a button when you book a flight on—and household passes to offset the energy used in your home. Several high profile companies have also partnered with TerraPass, including Patagonia, whose mobile sales force uses carbon balanced vehicles to meet with buyers, and the Ford Motor Co., which has teamed up with TerraPass for its “Greener Miles” program.

The company has also attracted ample media coverage, with Germany’s Der Spiegel calling it, “A brilliant attempt to use capitalism to fight global warming.”

The ultimate goal, according to Ulrich, is to reach one million members and offset 10 billion pounds of CO2 emissions. Meanwhile, he plans to keep cycling to and from work—and to keep on making those weekend treks to New England in his gas guzzling pickup truck.

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Originally published on December 7, 2006.

Originally published on December 7, 2006