A Few Essential Ingredients for a Purchasing Cooperative

Composting & Buying “Compostable” Paper Goods in Durham, NC

A local environmental leader, Crystal Dreisbach, Founder and Executive Director of Don’t Waste Durham, invited me to join her and two local restaurant and food truck owners to imagine how we could help them purchase biodegradable plates, cups, and carry-out containers as a co-op.

The basic problem? 

Tim Morris, owner and operator of Caffe Bellezza, started the meeting: “The compostable cups I buy cost 200% or more of what their paper counterparts cost.” He continued, “If it was just a matter of 15-25% more, it would be much more palatable.”  Joe Choi, owner of Namu, said, “I have to pay 45 cents per bowl. The compostables cost so much more, I have to increase prices. Fortunately, my customers are willing to pay more for the compostables, but it’s a lot.”

The frustration was clear.

While many of Joe’s customers are willing to pay a premium, he did feel like he had lost some sales over the increased prices. Tim, whose coffee shop is much smaller, is paying 30 cents per 12 oz coffee cup with a Java Jacket and lid. Whereas Crystal shared that a larger coffee shop, three-location Cocoa Cinnamon, is paying 15 cents since they buy 12,000 per month.  Buying at a much higher volume can make a difference for price.

 

Compost pick-up was another major pain point.

Joe shared this experience: “The service for compost hauling used to cost me $600 per month. They increased it to $900/month when I had to increase the service level. And then just a couple weeks ago, after Compost Now bought the smaller company I was using, they increased the price to $1,800 per month.”

 

Volume and Basic Feasibility Economics

We talked about how, between the 3 of them, they could easily come up with 100 restaurant owners and food trucks that they knew personally. We estimated an average spend of $4,000 on products that they might switch to compostables, if the price and quality was reasonably good. So we estimated $400,000 per year of purchases and a 2.5% rebate of $10,000 to coordinate & organize the effort.

For the compost hauling, we estimated that the average trash and recycling pick-up cost was $350 per month and the average compost hauling was $300 per month or about $7500 per year combined. Multiplied by about 30 restaurants we thought we could easily engage $225,000 per year with a 10% rebate of $22,500 to organize the co-op.

We quickly sketched a path to how this co-op for compostables and composting could begin to generate meaningful revenue to pay for the organizer entrepreneuer.

This vision relies on a few key assumptions:

  1. The facts are in our favor. With 100 buyers of compostables and 30 buyers for composting & waste pick-up and a cumulative participation of $600,000+ per year, this co-op could:
    1. Negotiate meaningfully better pricing and terms, so the value to the customers would be sufficient for them to join
    2. Find suppliers and vendors who would agree to our terms. They would offer relatively small order minimums, an easy path to affiliation with the co-op, reasonable delivery terms, payment terms, return policy, and they would agree to pay the rebate required to fund the co-op in an on-going way
    3. Tap into sufficient market competition. There are enough providers that want our collective business that we could use competitive negotiating to get what we’re looking for — or at least a minimum viable level to make it workable. Assessing the minimum viable level is one of the hardest parts of this calculation, but is essential to the early stages of a purchasing cooperative.
  2. The buyers trust that the opportunity is real and worth their time. The art of organizing this process relies on:
    1. Making sure we’re in close relationship with critical “early adopter” and “influencer” restaurant and food truck owners. Since the stakes are highest for them, they need to be at the table each step of the way to hear pushback from the suppliers and develop their own, more nuanced understanding of the market, so that they can make a compelling argument to their peers about why they need to organize.
    2. Having enough data from a variety of buyers, from small food trucks to large restaurants, to extrapolate total potential purchase volumes with reasonable accuracy, while still being conservative enough to earn credibility with suppliers when more than we said actually show up to make the first few group purchases.
  3. The suppliers believe us and are eager to serve us. When negotiating and talking with suppliers, providers, or distributors, they must feel that the opportunity with this group of buyers is viable. This occurs through sharing large projections of total spend that gets their attention, as well as specific anecdotes of real buyer needs and challenges that we’re solving through this process. We must present as established and prepared so the seller will believe that we’re going to be successful.
  4. Relationships are key. The art of this negotiation also relies on an iterative process of getting to know suppliers and what they can and won’t do for us at certain levels of market power, leverage, and percent of their total revenue. We have to make sure that we’re relating to a person who’s up high enough in the company that they can make decisions with their own discretion and values and be impacted by a human argument.

 

Next Steps: Organizing More Buyers

Recruiting buyers actually starts with talking to providers to get a sense for their constraints, openness, and interest. What volumes would make up a meaningful chunk of their business? What value could the co-op add to their lives to make their job easier?

After that, let’s say the critical numbers are around $300,000 and we think we can do that through 12 of the larger & more influential buyers. Can we get 12 buyers to believe this might be possible, such that they show up to a meeting and follow up by sharing their spend data, what would make it worth it to them to switch, and what would hold them back.Once the organizer builds a successful network of 12, then the growth of the co-op becomes a matter of scale. Do the same thing, just do it bigger!

Because ultimately, the person who is in the middle of coordinating all of this is the essential ingredient. Even if purchasers and suppliers are aligned, without the right broker, the opportunity could fail. This person needs to be an intermediary that can deliver trustworthy, believable, and disciplined follow-through, negotiate well with all parties, and balance relational instinct with ruthless savvy when it comes to the numbers.

None of these skills rely on natural talent. CPA Co-op is here to train and support “Organizer Entrepreneurs” who have the passion to make a difference and change our local economy.

Carbon Offsets: To Buy or Not To Buy? A Short Guide

Three of my best friends from college just texted me telling me they’re planning to buy carbon offsets and wanted my two cents. The problem is: I’m having difficulty reducing my thoughts to a text.Screen Shot 2019-07-25 at 10.05.12 PM

A little more than 10 years ago, my work as a climate change and clean energy consultant led me to writing a paper on Greenhouse Gas (GHG) Offsets. Screen Shot 2019-07-25 at 10.06.24 PM The more I learned, the more I realized the complexity inherent in trading money for “emissions reductions” in other places. The problems begin with the complexity of the basic criteria for what makes up an offset (additionality, measureability, complete accounting, verifiability, enforceability, permanence).

Here is an excerpt from my 2010 IHS CERA Report where I explain these 6 criteria.

Assuming you’re looking for a less technical response, I like this below excerpt from Josie Wexler of Ethical Consumer’s “A Short Guide to Carbon Offsetsbecause she emphasizes some DIY offsetting options and also reminding us that the most important thing is to reduce our own emissions.

Recommendations from Ethical Consumer

We recommend offsetting at the level of individual projects (rather than just giving to a company’s whole portfolio) because this is the level at which there is most information available. Accordingly, most of this feature deals with how best to choose such a project. In the process it also looks at criticisms of specific types of offsets, and of the whole concept.

If you want to buy official offsets, we recommend giving to Gold Standard-approved wind or solar energy projects. You can find Gold Standard VER projects on the Gold Standard website and you can buy Gold Standard CERs directly through the UN’s platform.

Alternately, if you fancy DIY offsetting and want to give to educational projects, the fantastic website Skeptical Science (which largely tackles climate sceptic misinformation) lists some that are crowdsourcing.

Lastly, you should always take promised emission cuts with a pinch of salt, bearing in mind that independent research has cast doubt on them, even in the case of the most reputable standards.

The best thing to do is reduce your own emissions in the first place.

Does it matter if it’s less than a drop in the bucket?

Voluntary vs. Compliance

One of the biggest problems I have is that individual purchases of carbon offsets are like a fraction of a fraction of a contribution to what’s needed.

Carbon offsets were created under the Kyoto Protocol’s Clean Development Mechanism as a way for countries to comply with their emissions “cap”. Because entities in the EU and in other places have had to comply with these regulations, its created a need for offsets for “compliance” purposes. The vast majority of offsets are purchased from “Compliance” buyers.

The rest of us are “voluntary” buyers — including companies and universities and others.

Then of the “voluntary” buyers, companies buy 98% of the market and individuals (like you and me) buy less than 1%.

Again, to quote the Ethical Consumer:

Corporations, mostly multinationals, bought 98% of voluntary carbon offsets in 2015. Individuals bought less than 1% of them, and their share has been shrinking.

Despite the impressive growth of the voluntary offset market, its current effects are not even drops in the bucket of what is necessary for meaningful climate-change mitigation.

But something is still something, right?

Screen Shot 2019-07-25 at 10.04.52 PM

Well, if you want the mainstream, neoclassical economic analysis on carbon offsets, here’s an articulation of the public good and the free rider problem by Matthew J. Kotchen in the Standford Social Innovation Review “Offseting Green Guilt.”

His conclusion is as follows:

My own view is that purchasing carbon offsets is better than nothing, assuming that you are careful about where you buy them. Yet when considering ways to reduce your own carbon footprint, you should compare offsetting to the more certain alternative of directly reducing your own emissions. As offset provider Carbonfund.org states, your motto should be, “Reduce what you can, offset what you can’t.”

If I wanted to encourage you in purchasing offsets, I’d sign off here, given that I like Carbonfund.org’s great tag line.

However, I’ve become quite a skeptic and I believe it’s important to also read through the critique of carbon markets and offsets in particular. The Corner House in the UK provides one of the better critiques on carbon trading.

The report describes the financial aspects of carbon trading and how the carbon market has changed over the past few years as new interest groups and complex financial arrangements have become involved. As a result, carbon quota prices have become more volatile, speculation in the carbon market has increased, and the market is increasingly delinked from its original objective of providing an effective cost-management tool to reduce carbon dioxide emissions.

Their synopsis document is called, “Designed to Fail“. Here’s an excerpt from page 7:

Advocates of the offset system point to the many world-wide carbon-reduction projects that are funded by the system; the savings to industry (and thus consumers and society at large); the flow of money from North to South; the export of new technologies to developing economies; and how innovation in low carbon technologies has been incentivised. FERN [the author] believes that these claimed benefits very rarely exist in reality, and are heavily outweighed by the significant, systemic failure of offsetting to reduce emissions at all, which we discuss in the last section of this paper.

Another point they make is that “of the US $ 144 billion carbon market, only US $ 3,370 million goes to project developers and only a fraction of that will go to communities who host projects.”

I think some of their critiques help remind us that fundamentally carbon offsets weScreen Shot 2019-07-25 at 10.04.37 PMre created to make it easier for us to do more “cost effective” emission reductions. The reality is also that emissions reductions may be  cheaper in other places in the Global South.

Thanks to our mainstream neoclassical economic theories and practitioners — with our focus on markets, free trade, individuals, & utility maximization — we’ve created a carbon trading market allowing us to continue doing what we’re doing with our fossil intensive energy infrastructure and pay others to make reductions.

The challenge is: can we create a commodity from a reduction in emissions?

This brings us back to the point of what are the 6 criteria for offsets: additionality, measureability verifiability, complete accounting, enforceability, permanence.

Is our money well spent investing in the financial markets creating these offsets projects, the financiers, administrators, marketers, developers, and verifiers? Screen Shot 2019-07-25 at 10.04.43 PM

Is it better spent on a specific project you do in your house to reduce some of your emissions? Or a project with somebody you know? In your city or in a community you have relationship with and an understanding of abroad?  Or might our money be better spent on advocacy or organizing? If we could pass climate policy — with a cap on emissions — on state or federal levels — that would do the most good. What about giving $10 to the Chesapeake Climate Action Network — they’re one of the local groups who I most respect in their organizing and advocacy work. On a national & international level, I believe 350.org has done and continues to do some incredible work. For me it comes down to building power and better vehicles for change.  So that’s where I’m investing my money. What are the vehicles I believe are capable of building the power needed to help people, institutions, systems make the hard decisions/investments to decarbonize? And what are the paths to getting states, regions, countries to implement the policy and regulatory changes we need to decarbonize our electric & transportation sectors?I have a few ideas… but I’ll leave that for another post.