As CEO of Cut Cute Couture, a fledgling women's clothing company in Los Angeles, Jonno Agnew doesn't exactly have a fleet of delivery trucks. Instead, he and his partner drive between factories and showrooms with the company SUV filled to the brim.
Conscious of the low gas mileage SUVs usually get and the high emissions they generate, Agnew recently purchased a TerraPass. This is a product developed by a group of Wharton MBA students that allows drivers to pay to offset their cars' emissions (see BW Online, 7/15/05, "Getting TerraPass on the Road").
How does it work? TerraPass takes member fees and uses the money to help finance projects that reduce industrial carbon dioxide emissions and support renewable energy, such as wind farms. So while your Ford Excursion isn't any cleaner, you're still helping to reduce the overall amount of CO2 pumped into the atmosphere.
GUILT-FREE DRIVING. But you don't even have to own a car to have a TerraPass. "A lot of people feel that buying a standard TerraPass is like their Kyoto contribution," says Tom Arnold, the company's CEO, or chief environmental officer.
It will cost Agnew about $80 per year to make his company car emission-free -- at least on paper. "Greenhouse gases and fuel efficiency are critically important issues, so we were enthusiastic about the idea of spending a small amount of money to help with these causes," Agnew says. Prices are calculated using a formula, which incorporates type of car, how much CO2 it produces, and how many miles the driver travels each year.
The cost of guilt-free driving? Turning a Hummer H2 into a zero-emissions car for a year (based on an average of 12,000 miles) costs about $80. A Toyota Prius hybrid, on the other hand, only costs about $30. Somewhere in the middle, an Acura TL would cost $49.95 -- about 96 cents per week, or 14 cents per day.
ELIMINATING POLLUTION CREDITS. The company, launched with just $15,000, has proven to be a viral marketing success story. Now, with more than 1,200 members and an estimated $3 million in corporate purchases in the pipeline (the company doesn't disclose annual revenue), TerraPass wants to save the world -- and make a profit doing it by taking a cut of member fees.
Whenever someone like Agnew purchases a TerraPass -- a membership displayed with window decals and a bumper sticker -- the company purchases CO2 emission credits from third parties, such as the Chicago Climate Exchange, a greenhouse-gas emissions trading system, and retires them.
Within the exchange, companies that use less than their share of emissions can sell credits to companies that are failing in their own bids. In effect, the dirtier factories can pay greener operations to do the work of cutting emissions. Outsiders like TerraPass can purchase these credits and retire them, thus eliminating some of the participating companies' ability to pollute.
"The cool thing about TerraPass is that there's a quantifiable end result," says Matt Bassett, a 21-year-old Johns Hopkins University student who bought his mother a TerraPass for Mother's Day.
CONSCIENCE BALM. To illustrate, a midsize car produces roughly 10,000 to 15,000 pounds of CO2 per year -- 20 pounds per gallon of gas. With its 1,200 members, TerraPass has eliminated roughly 14.5 million pounds of CO2 from the atmosphere, according to the company Web site.
Environmentalists offer praise -- with a caveat. "Although it's good that TerraPass is retiring pollution credits, it wouldn't be good if it reduces people's sense of responsibility for creating pollution in the first place," says Daniel Becker, director of the Sierra Club's global-warming program. TerraPass says the majority of its customers are already driving relatively fuel-efficient cars, not SUVs.
While customer trends are still solidifying, TerraPass is growing at a fast clip -- as much as 40% a month, fueled largely by word-of-mouth and the company's outreach at environmental fairs.
B-SCHOOL PROF'S BRAINCHILD. On top of consistent growth driven by consumers, TerraPass has been surprised by the level of corporate interest. Arnold says he's less than a month from a deal with a Silicon Valley technology company that wants to provide a TerraPass to each of its 4,000 employees as part of their benefits packages. When finalized, the deal will multiply total sales by five and simultaneously catapult the small company to profitability. Arnold is also currently pursuing partnerships with major car manufacturers to attach the TerraPass decal their product lines -- a potentially huge boon to the company.
TerraPass' closest U.S. competitor is Native Energy, a Vermont-based company that sells RECs, or Renewable Energy Certificates, which state that the energy an individual bought was produced sustainably -- an effort to support clean-energy projects.
TerraPass was the brainchild of Karl Ulrich, a Wharton professor looking for a real-life way to illustrate his lesson plan this past spring. As a self-described environmentalist, he was also looking for a way to justify his frequent drives from Philadelphia to Vermont. One of 40 students in the class, Arnold took over TerraPass full-time after graduating in May. "We'll be profitable in quarter two," he says, noting that the company, with just three part-time employees, already recorded a month in the black last December.
BIG PLUG. Instead of excluding one another, Arnold says money-making and the greater good can be linked. "We're not trying to hide our desire for profit," he says of his foray into the world of so-called social entrepreneurship. "We just want to achieve some social benefit through its pursuit. We feel that these are totally compatible goals."
Some environmentalists are incredulous at the idea. "What's more interesting to me than the project itself is that a group of Wharton MBAs saw a market for [reducing greenhouse gases] in the first place," says the Sierra Club's Becker. But he adds, "I can't say what effect it will have in the long run."
Jeff Skoll, the first president of eBay and founder of the Skoll Foundation, the largest organization supporting social entrepreneurship (see BW Online, 6/16/05, "An Entrepreneur Who Cares"), is about to give TerraPass a big plug.
IS OPRAH LISTENING? Skoll's film company, Participant Productions, is working on a movie called Syriana, which will explore the corruption of the oil industry and star George Clooney and Matt Damon. As a call to action at the film's conclusion, viewers will be encouraged purchase a TerraPass.
Such buzz could be the key to TerraPass's long-term success. According to a recent customer survey, 90% reportedly told friends and family about the product and encouraged them to make a similar purchase.
"Maybe Oprah will find out about it -- then they'll be off to the races," quips Agnew, who considers himself one of those satisfied customers. For TerraPass, it's full speed ahead.