Dell Aims to Go Carbon Neutral

It's portraying itself as at the head of the pack among computer makers with a big initiative to help the environment. How good is the plan?

Dell (DELL) is embarking on a broad environmental initiative under which it plans to consume less energy and use more power from renewable sources in a bid to make its operations carbon neutral by the end of 2008.

The announcement came in a speech Sept. 26 by CEO Michael Dell at the Center for Strategic & International Studies in Washington. "Never before in the history of business have we seen such a critical need to build a worldwide community dedicated to improving the environment," Dell said.

Carbon Scorecard

With a statement like that, one might think Dell is aiming to turn his sprawling $55 billion company on a dime into an oasis of eco-friendly industrial practices. But given the details disclosed so far, the move looks more like a baby step for a business of this size.

Dell executives say the effort will focus mostly on power consumption at Dell-owned and leased buildings around the world. For starters, employees' computers will be turned off at night and during long periods of inactivity, says Dane Parker, Dell's director of global environmental health and safety programs. The company estimates these efforts will save $1.8 million per year in power costs and cut annual carbon dioxide emissions by 8,500 tons—about the same amount of CO2 spewed by 1,400 American cars in a year.

However, while certainly a step in the right direction, 8,500 tons amounts to just 2.2% of Dell's annual CO2 emissions, according to the latest data released by the Carbon Disclosure Project. The CDP is a nonprofit coalition of financial institutions, including ABN Amro (ABN), HSBC, AIG (AIG), and pension fund CalPERS, that manage a combined $41 trillion assets. The group uses that investing clout to press companies to disclose data on their carbon emissions and then produces an annual report rating companies on their disclosures.

Dell has told the CDP its annual global emissions amounted to 344,000 tons of CO2. That was well below the 2 million tons reported by archrival Hewlett-Packard (HPQ) and the 2.8 million tons reported by IBM (IBM), but higher than the 255,000 tons reported by Sun Microsystems (JAVA).

Using Alternative Energy Sources

"It's going to be a big job," says Allison Hannon, corporate engagement manager for the Climate Project, an advocacy group that has worked with Dell on its carbon policy. "First, it's going to have to get its house in order and then work on reductions."

Dell says it's also replaced the lighting fixtures at its buildings in Central Texas, cutting power demands in those facilities by 9%. The computer maker also plans to buy more power from alternative sources such as wind farms. Already, 10% of the power needed to run Dell's facilities in Austin, Tex., come from renewable sources. However, "our biggest constraint with renewable energy is with availability," says Mark Newton, Dell's environmental policy leader. "Availability is a bigger problem than cost." While that increases demand for alternative energy, the immediate impact on carbon emissions is not very significant, says Michael Gillenwater, a climate policy researcher at Princeton University. "A lot of power from renewable sources would have been generated anyway," so there may not be a corresponding drop in electricity generated from fossil fuels, he says.

But since Dell can't eliminate all its emissions through energy savings, efficiency, and renewable energy, the company plans to buy carbon offsets to achieve "neutrality." Carbon offsets—the practice of buying and selling rights to emit C02—constitute a market worth about $100 million in the U.S. But in some cases, the impact of offset purchases can be negligible (BusinessWeek, 3/26/07). "We're working with a team of environmental organizations as we shape this offset strategy to ensure that the offsets are permanent and meaningful," says Parker.

Notably, the initiative's cost has been small: So far, Dell has spent about $5 million, or less than one-tenth of 1%, of its fiscal year 2006 sales of $56 billion. Parker says the money spent so far will ultimately produce savings. "In some cases, the return on investment is a year and a half, and in some cases it's longer—like four to five years," he says.

Outsourcing Complicates The Picture

The details were also thin, however, as to how Dell plans to push the companies that actually manufacture its computers to meet the new goal. Dell says it will require major suppliers to report their emissions, but ultimately, the company has a lot more control over how much power it consumes in its own offices and facilities.

Like every company in the computer business, Dell outsources a lot of production to foreign manufacturers. Jeffery Wu, an industry analyst with iSuppli, estimates that more than half of all Dell notebook PCs are manufactured by Quanta Computer, while another third come from Compal Electronics. Dell's desktop PCs and servers are partially built in Asia, then shipped to Dell facilities in the U.S. and Ireland, where they're assembled, configured, and shipped to customers.

All that outsourcing makes for a vastly more complex picture of Dell's carbon impact, and all the more difficult to assess, Gillenwater says. "It's a matter of where you draw the boundaries. Everyone wants to say they're carbon neutral, but then there's the question of what that means. There's no clear definition. There's the problem with measuring the carbon footprint, and the wider out you draw the boundaries, the more complex the picture gets, and the less control a company like Dell has with the information it gets from its suppliers."

Goal: carbon neutral

Dell's logistics suppliers—mainly delivery companies—will be required to use biodiesel fuels on their vehicles. In particular, suppliers sending parts to Dell's campus in Penang, Malaysia, will have the emissions of their vehicles measured. Those that don’t meet Dell's demands, Parker said, will have 10 days to fix the vehicle or risk being banned from Dell’s campus.

In general, computers have a huge environmental impact (BusinessWeek, 9/10/07) from manufacturing, to the energy they consume while in use, to disposal, and recycling. Dell is one of many computer makers, including HP and Apple (AAPL), that have come under fire from activists and others who want the companies to lessen their overall impact on the environment. Lately, Dell has tried to portray itself as being greener than others in its industry, launching efforts like "Plant a Tree for Me," which encourages customers buying Dell products to offset their carbon impact by adding a few dollars to their purchase for charities that plant trees.

Dell is just the latest big name in the technology sector to brand itself with the "carbon neutral" billing. Google (GOOG) and Yahoo! (YHOO) have both promised to make their operations, which consist primarily of huge installations of power-hungry computer servers, carbon neutral by the end of 2007.

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