Consumer Trend Analysis
By Ronald Balkaran
For MBA 583 - Consumer Behaviour
The changing world and our ability to better understand the effects of climate change have led to a growing consumer trend of fossil fuel independence. Consumers are becoming increasingly aware of the environmental impacts caused by burning fossil fuels and the long-term irreversible damage to our climate and future generations. As a result, decisions to purchase products which are better for the environment are gaining support and more expensive assets such as homes and cars are becoming independent of fossil fuels. As social groups and individuals demonstrate increased support for fossil fuel independence, it has led to technological advancements in a variety of industries, with the automobile industry being the main focus for this trend. Advancements in other industries to feed this consumer trend include solar power and geothermal use in the housing industry and wind power in the energy sector.
We no longer need scientists and experts to convince us that burning fossil fuels has a negative effect on climate change. We are experiencing and, in some cases, affected by these effects through record breaking heat waves, increasingly violent storms and rising sea levels to name a few. Scientists continue to issue warnings that if a decline in greenhouse gas emissions is not seen by 2016, the impacts will be irreversible. In a recent petition by a Rhode Island group, Fossil Free Rhode Island, lobbying for fossil fuel independence, it was cited that in order to keep global warming under two degrees we must put no more than 600 gigatons of additional carbon dioxide into the atmosphere by 2050. Current reserves of fossil fuel are estimated at 3,000 gigatons (as estimated in the CIA world fact book) which is five times the safe limit.
The Fossil Free Rhode Island group is one of many groups lobbying for fossil fuel independence through renewable energy sources and divestment of government funds from the fossil fuel industry. Similar petitions were seen in Washington, D.C. and currently ongoing protests in the US against the Keystone XL pipeline. The trend to be independent from fossil fuels is only a subset of the ongoing environmental trend where consumers are making conscious decisions when purchasing products in order to reduce the negative effects on the environment.
The increasing pressure to become fossil fuel independent and reduce negative impacts to the environment has led to an increased demand for alternate renewable energy sources. The ongoing technological trend to provide smaller, more efficient devices has no doubt played a role in this consumer trend. From more efficient internal combustion engines to pure electric vehicles, solar power systems capable of providing power to homes and communities, rechargeable batteries and hydrogen-fuel cells, and new emerging technologies are all examples of the technology advances in relation to this specific consumer trend. We are currently in an era of extremely fast-pace technological advancements as industry and consumers seek better designs, and increased efficiency and performance. There is no doubt that industry will continue to conduct research and development in alternate energy sources as the fossil fuel independence consumer trend continues to ensure the right products are available to satisfy consumer demand.
The economic state of the world today, since the economic turmoil in 2009, has resulted in reduced job security and increased unemployment rates. This is also compounded by global events and those which impact the production and supply of resources such as oil and gas and food supplies. Although the costs of commonly required commodities appear to have increased, there are a greater number of suppliers which has resulted in a greater need for competition and marketing in today’s markets. Consumers are continuously trying to get the best deal possible and this trend can be observed through applications such as living social, group on and wag jag. Similarly, as the price of fuel continues to increase, consumers are also looking at ways to save money and not be dictated by the high prices. This trend in frugality and increasing fuel prices will continue to play a significant role in the trend of fossil fuel independence and alternate energy sources.
Government support and decisions on environmental concerns will determine the future of trends such as fossil fuel independence. Environmental lobbyists and supporting senators in the US continue to protest and debate the Keystone XL pipeline to transport synthetic crude oil from the Alberta oil sands to the US gulf coast. In a recent speech by President Obama, he addressed this issue and advised that the project will only be approved if it is in the nation’s interest. The nation’s interest will be served only if “it does not significantly exacerbate the problem of carbon pollution.”
As mentioned earlier, specific cities and states have already identified a plan to be fossil fuel independent and Denmark has led the way with a plan for fossil fuel independence. A presentation made by a Denmark minister to the Institute of International and European Affairs on the plan can be seen below.
In Canada, government support has already been observed as financial incentives and rebates are offered for hybrid and electric vehicle purchases and for fossil free installations in homes. The Intergovernmental Panel on Climate Change (IPCC) recently held a working group and issued a press release on September 27, 2013 which stated that “warming in the climate is unequivocal” and limiting the impact will require “substantial and sustained reductions in greenhouse gas emissions.” Following the working group, the IPCC issued a summary of the working group outcomes for governmental decision-makers. The complete press release with other details from the working group can be found here.
The sense of self-satisfaction is becoming a greater part of our culture today. We find ourselves inclined to do the best we can and “to do our part.” This can be seen in areas such as helping those in need in far away countries, supporting a child at school in Africa and choosing a product which reduces the negative impact to the environment. Similar to recycling, we are more involved and can achieve a sense of contributing to the greater good through conscientious consumerism. This culture change underlies the fossil fuel independence trend as more groups and individuals lobby against fossil fuels and continue to highlight the negative impacts to the environment and future generations. It may trigger a sense of guilt on consumers to make the “right choice.”
Automobile Industry -
Hybrid & Electric Cars
One specific industry that continues to benefit and progress forward within the fossil fuel independence trend is the automotive industry. Over the past decade, the number of hybrid and electric cars available to consumers and actually purchased has increased significantly and continues to increase. Outlined below are statistics on the sales of both hybrid and electric cars in the United States and similar trends can be seen in Canada. Although fewer hybrid and electric car models are available in Canada compared to the US, almost every major automotive car manufacturer now has a hybrid option.
In review of the above mentioned macro-factors, the automotive industry is driven by the environmental trend to reduce greenhouse gas emissions and, in so doing, reduce the impact to climate change. The average annual greenhouse gas emissions (measured in pounds of CO2 equivalent) of conventional, electric and hybrid vehicles are outlined below which demonstrates the reduced negative effect on the environment offered by these vehicles.
Technological advancements in the automotive industry have led to various types of reduced or complete fossil fuel independent vehicles. Electric cars such as the Tesla S-model require no fuel whereas hybrid vehicles still require fuel but in reduced quantity due to its dual reliance on electric power and gasoline. Until electric vehicles can overcome the limited range of travel between charges, hybrid vehicles will continue to advance and remain more popular. Newer variations include plug-in hybrid electric vehicles and extended range hybrid vehicles which attempts to solve the range of travel problem.
Despite the higher costs of both hybrid and electric vehicles compared to conventional vehicles, increasing gas prices have led to studies which demonstrate that financial savings will be achieved in the long term. Economically, consumers are also considering the overall preventive maintenance costs such as oil changes as they compare the financial benefits of hybrid and electric vehicles. Research by the US Department of Energy Alternate Fuels Data Center has also shown that the average total fuel costs for conventional vehicles versus hybrid and electric vehicles compared on a 100-mile trip are as follows: conventional ($13.36); hybrid electric ($8.78); plug-in hybrid electric ($7.10); and all-electric ($3.74). As consumers seek opportunities to get the best deal and save money in the long term, this will no doubt be a consideration in the decision-making process. Similarly, as governments work towards curbing the impacts of climate change; financial rebates are being offered to consumers for purchasing hybrid and electric cars. In Canada, most provinces offer rebates ranging from $500 up to $8,500 depending on the province and vehicle make and model.
Conventional automotive manufacturers who do not keep up with the trend in hybrid and electric vehicles are at risk. Similarly, in the bigger scheme of things, the oil and gas industry is at risk and will need to look at alternate sources of energy into the future. Emerging companies with goods used in the production of alternative energy sources such as wind turbine manufacturers, solar panel manufacturers and geothermal equipment manufacturers will continue to progress technologically and economically as interest and demand increases. The housing industry, similar to the automotive industry, will continue to develop and utilize alternate means of power sources. An example of the housing industry move in this direction was the Drake Landing Solar Community (DLSC) in Okotooks, Alberta which is equipped with a central solar heating system and other energy efficient technology.
The fossil fuel independence trend has only just started and will continue as governments and consumers attempt to reduce the impacts to the environment caused by burning fossil fuels. Technology will continue to evolve to feed the consumer-required efficiencies and demand while economical challenges will lead consumers to consider long-term financial savings.