1. BUSINESS: Caterpillar hopes even the heaviest machinery can have a lighter footprint (Greenwire, 04/25/2008)

Nathanial Gronewold, Greenwire reporter

As the global price of raw materials continues to boom, few companies are reaping the benefit as much as Caterpillar Inc., the manufacturer of heavy earthmoving equipment whose name is synonymous with the open pit mines that feed global growth and the airports and highways carved from the earth that drive it.

Indeed, company officials readily admit that they have done very well in an era of constrained resources and the rapid development of growing giants like China and India that many environmentalists argue is pushing the ecology of the planet to the brink.

Since 2003 the Peoria, Ill., firm has doubled in size. Last year it saw record-breaking profit, with sales and revenues reaching about $45 billion. And in the first quarter of 2008, Caterpillar reported sales growth of 18 percent over the previous year, hitting another record of $11.79 billion. If the market boom continues -- and most analysts expect it will -- then Caterpillar is well on its way to achieving its target of $50 billion in global sales by 2010.

"We continue to see robust demand for products used in the global mining and energy industries and for machines used by our customers to build infrastructure, particularly in emerging markets," Chief Executive Jim Owens said in announcing first-quarter 2008 financial results. "Even though North America, our largest geographic market, is depressed, we are investing for growth."

But as a company whose equipment makes possible ecologically controversial projects like the Alberta tar sands or copper mining in the Amazon rainforest, Caterpillar has found itself on the receiving end of criticism from various environmental groups in the past. Those attacks could return now that issues such as climate change and deforestation are high on a lot of people's minds.

That does not dissuade officials at Caterpillar, who are confident that they will continue to perform well during not only the global rush for resources but also the emerging climate of strict environmental regulations, which they see more as an opportunity to get ahead of the competition than as a burden to be resisted.

"The fact of the matter is, the world needs resources," said John Disharoon, Caterpillar's director of sustainable development. "Our challenge is to ensure that our customers harvest those resources in the most efficient ways possible, and that's through our clean diesel engines and loading capabilities and leaving a lighter environmental footprint as we harvest the resources and bring them to market."

Technology as catalyst, challenge

Disharoon says that it is technology -- driven in part by the $1 million Caterpillar spends each day on research and development -- that will help the developing world undertake the necessary economic growth in the most efficient and environmentally sound way possible.

"We have very efficient systems and engines in our products," Disharoon said in an interview. "We try to size our products, our load-in products with our hauling products for coal mining or iron ore mining, gold mining, applications like that. So we've got pretty good equipment configurations that work with each other."

Still, such technological advances are much easier said than done considering the type of equipment Caterpillar manufactures. Its biggest earth-moving trucks, found at mining projects throughout the globe, rest atop massive 13-foot-tall tires and reach the height of a five-story building when the dump bucket is fully raised. Far heavier than even a packed Boeing 747, all that weight requires huge 3,550-horsepower engines to drive it.

The company says its largest trucks spew about 15 pounds of carbon dioxide every minute. This will prove daunting for the company to overcome should on- and off-road transportation be included in any national and global regulations to reduce industrial CO2 emissions.

But Caterpillar representatives point to the U.S. regulatory climate as proof that it is up to the challenge, citing U.S. EPA's restrictions on particulate, sulfur dioxide and nitrogen oxide emissions that have driven the company to develop cleaner diesel engines for tractor trailers.

To meet the new standards, Caterpillar came up with its ACERT clean diesel technology, which is now found in many of its products.

"ACERT technology is Caterpillar's patented clean diesel technology that helped us reach our 2007 EPA targets for particulate matter emission reductions," Disharoon said. "It will be the primary technology for our 2010 EPA's tier 3, tier 4 criteria pollutant reductions."

At a recent green business conference in New York, Caterpillar Chief Financial Officer David Burritt said his company had spent more than $1 billion to develop ACERT. As a result, he said, all the diesel engines it makes for big highway rigs and even school buses now emit 98 percent less of these pollutants than they did 10 years ago.

Ready for rules

The U.S. precedent could explain why Caterpillar is one of the few industrial giants in the world publicly advocating stricter global environmental regulations, including government limits on greenhouse gas emissions. The company believes that lessons it has learned in developing on-road clean-burning technology in the United States can drive further innovation in a host of products it sells worldwide.

Case in point: A little more than a month ago Caterpillar unveiled the D7E, an electric drive, fuel-efficient bulldozer that operates with 60 percent fewer moving parts compared to earlier models and emits much less CO2 as a consequence of its fuel savings. The company expects to introduce the new tractor to the market by 2009.

Caterpillar recently unveiled the D7E, an electric drive, fuel-efficient bulldozer. Photo courtesy of Caterpillar.

Company officials also boast of their green credentials in other areas. Caterpillar has been listed on the Dow Jones Sustainability Index for seven straight years and is also a member of the U.S. Climate Action Partnership, a coalition of corporations and environmental nongovernmental organizations pushing for national carbon legislation.

"We are advocating a federal, nationwide cap-and-trade program for CO2 emissions, primarily federal because we don't think state and regional approaches will work," said Disharoon. "CO2 doesn't know a ZIP code, so you really need a federal program and a mandatory program, because if you have people opting in or it's voluntary, then obviously people will participate at different levels."

Such a program, Disharoon said, should include not only utilities and stationary power sources but also industrial installations, commercial buildings and even transportation, which would have the most direct impact on Caterpillar's operations. "As economy-wide as you can get," he said.

Equipment for a new atmosphere

Caterpillar is already taking advantage of the new carbon-minded atmosphere in other ways. The company manufactures equipment that can capture coalbed and landfill methane gas and burn it, producing some clean electricity while preventing the heat-trapping methane from entering the atmosphere. The technology has proved hugely popular with traders, who use it for projects in Brazil and other developing countries to earn carbon credits under the Kyoto Protocol's Clean Development Mechanism.

Caterpillar also has developed a system to capture coke oven gas, a byproduct of steel production, to burn and generate power that can be used in the very same industrial process. The company is enthusiastically eyeing the huge potential for deploying this energy-saving and emission-reducing technology to China and other rising industrial powerhouses, which explains its strong belief that large developing nations should also be subject to mandatory greenhouse gas emission controls.

These environmental niches remain just a small part of Caterpillar's global operations. Like other firms, the company is still struggling to find ways to earn large-scale returns from such sustainable development technologies and business practices, which most shareholders still view with skepticism.

"The problem is, as I see it, is that the business case for sustainability is essentially an apology for time and resources spent on activities that are not central to generating good returns for the investor," said CFO Burritt. "It must also be profitable. Our major contribution to society will therefore come through our core business rather than through our philanthropic programs."

But Burritt and others believe strongly that the environmental regulations to come will make it more necessary than ever for corporations to find value and returns from sustainable development.

"Currently, sustainability metrics are not governed by the accounting rulemaking bodies, but I believe they must be, and we want to help shape consistent metrics that will be critical as carbon becomes a traded commodity," Burritt said.

Progress 'in the eye of the beholder'

Meanwhile, cost increases for energy and industrial metals continue to break records. The price for a barrel of light, sweet crude has been edging close to $120 per barrel. Copper prices settled above $3.89 per pound, up about 40 cents from a year ago.

Embracing climate change action and eco-friendly business metrics won't be enough to keep Caterpillar out of the sights of activists who can easily spot the company's logo on the sides of machines busily tearing apart rainforests, leveling mountains and diverting rivers -- activities that will continue as the global commodities boom rolls on.

"We still get a few folks out there that like to poke sticks at the fact that our equipment is making progress possible in someone's eye, just not necessarily in their viewpoint," Disharoon said. "But that's the cost of being a major player with a globally recognized brand."

Still, Caterpillar officials are sensitive to any notion that the products they make are by their very nature destructive and seem to contradict the sustainable development thesis.

"I would change your descriptor and say that we are the manufacturers of some of the most productive machinery that makes progress possible," said Disharoon. "Now, what is development in the eye of one beholder may be inhibition on local environmental impressions in somebody else's viewpoint, but we are trying very hard to make sustainable progress available around the world."

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