Software Giants Rush to Cash In on Carbon Counting

As the Markey-Waxman bill on carbon emissions cap-and-trade makes it way through the Senate, a new carbon-counting reality may soon be here for American businesses.

As it stands now, the legislation—known as the American Clean Energy and Security Act of 2009—will require steady reductions in greenhouse gas (GHG) emissions over time from industry, starting in 2012.

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Some companies are already doing this carbon tallying voluntarily, either on their own or via membership in non-profits like the Carbon Disclosure Project (CDP). Pharma giants like Novartis and Pfizer , mining and materials firms like Alcoa and BHP Billiton  , and utilities like FPL Group use the CDP’s data-gathering process to check their carbon emissions.

But the dawn of a new asset class of compliance carbon emissions in the US will mean a lot of accounting and tracking, and already many firms have jumped into the fray with enterprise carbon accounting software (ECA) packages.

Firms both large and small have been building software to help corporate management understand its carbon liabilities, and to track emissions reductions and other sustainability goals, like waste management and water usage.

Rising Demand

Cambridge, MA-based research firm GTM Research published a report last month -- “Enterprise Carbon Accounting: An Analysis of Organizational-Level GHG Reporting and a Review of Emerging GHG Software Products” -- looking at ECA trends and usage, and found 51 new entrants in the ECA marketplace. Leading the marketplace are big players like Johnson Controls   and SAP , while new entrants include software giants like Computer Associates and Microsoft .

According to GTM, while less than 300 companies have deployed ECA software to date, the market continues to grow as managers find an Excel spreadsheet only goes so far. More than 3,000 organizations worldwide currently calculate their corporate carbon footprint using spreadsheets and other ad hoc methods, GTM reports, adding that they expect the market for this software to quadruple in the next two years, driven by businesses that have not traditionally invested in environmental software.

Competitive Field

Like many markets expected to grow quickly to maturity, in the end big players will dominate and niche players will survive and thrive, with the middle tier getting run over. So many ECA software makers are pointing out their differentiation now, to avoid the Microsoft or SAP steamroller while racking up clients.

Some focus on broader corporate sustainability goals that go beyond just tracking emissions.

“Once you really dig, you’ll see a very, very large difference (between ECA packages) because the market is so convoluted,” says Karen Alonardo, founder of San Francisco’s CSRware.

Her firm’s package focuses on energy, solid waste, water management and “green” IT, and they’ve garnered clients like Bloomberg and VMware . Reducing carbon emissions becomes a byproduct of using their system, she says, instead of the primary goal. “I personally don’t think carbon is separate.”

While CSRware works towards aligning a client’s consumption patterns with their sustainability goals, in today’s economic climate, the bottom line is always an issue, so they want products like CSRware as an audit to see where savings can be found.

“Everyone asks ‘Who is the target?’” says Alonardo, referring to potential clients. “There could be up to 20 titles – chief sustainability officers, chief operating officers – but every company out there wants to save money.”

Other carbon-focused ECA software makers offer solutions that go beyond simply tallying emissions. West Coast-based Carbonetworks, for example, says its expertise goes beyond understanding carbon emissions, but in tapping a worldwide network of energy and carbon reduction projects and suppliers to find ways to reduce that client’s carbon footprint.

“First, you need to figure out what you have,” says the company's president and CEO, Michael Meehan, about the typical client’s carbon liability.

Meehan has been working on carbon accounting since the mid-90s, long before it had cachet. “I came in with a Sarbanes-Oxley (compliance) approach to carbon, but it was way too early; even now it’s too early.”

Meehan says the ECA sector is still trying to  strike the right balance. “There’s carbon accounting, and there’s broad-based sustainability (software)” he says about the competition. “Purely carbon focused isn’t right (without solutions) and sustainability aims at way too high a level.”

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