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Summary:

The market for carbon accounting software in the U.S. last year was as small as an average venture capital funding round — about $10 million — but researchers are predicting that the market will boom to $250 million by 2012. Who will grab that cash?

The market for carbon accounting software in the U.S. last year was as small as an average venture capital funding round: about $10 million. But researchers are predicting that the market will boom to some $120 million by next year and $250 million by 2012. Competing for that cash are dozens of startups, as well as big players in the enterprise software field, along with firms that have strayed over from the field of environmental and health compliance.

But there are some big differences in exactly how all these competitors approach the challenge of carbon accounting. At our Green:Net conference on April 29, we will talk with executives from three different carbon software players — enterprise giant SAP, well-funded startup Hara, and carbon reporting standards clearinghouse AMEE — on how they view the emerging markets, and what software capabilities will drive success for competitors, both in the short term and the long term. Here are some of the thorny questions they’ll be tackling.

1). How will carbon management software players tackle markets that lack carbon pricing? While Europe has a carbon cap-and-trade regime, the fate of similar regulations in the U.S. is still an open question, and the failure of the U.N. climate talks in Copenhagen this December have dashed hopes for the emergence of an international carbon trading regime in the short term. But while they’re waiting, startups are already looking to provide energy and resource efficiency services to give customers a way to pay off their investment.

Take Hara, the Kleiner, Perkins-backed startup that’s raised some $20 million and landed nameplate customers like Coca-Cola, Akamai and News Corp. Hara CTO Udo Waibel described to us some of the disparate services it’s providing for its customers. The city of Palo Alto, Calif. is measuring energy, water and waste, for example, while supermarket chain Safeway is focusing on energy efficiency. On the other hand, customer Brocade is using Hara to compare the energy and waste footprints of using paper, plastic or ceramic dining ware for the cafeteria of a new business campus, he said — an example of how this kind of software can help in making business decisions that incorporate analysis of environmental costs and benefits.

2). How will carbon accounting systems be able to incorporate the growing depth and scale of information that’s expected to be required of companies? Most companies use spreadsheets and utility bills to calculate their carbon footprints today, and thus are looking at bringing that past data into the new software platforms now available as a first step, Waibel said. “Once you become more sophisticated, you start to automate the data capture,” he said, using sources such as fuel card information for corporate fleet gas consumption or utility data feeds. “We’re seeing a lot of customers moving to that second phase right now,” he said.

Paul Hepperla, Vice President of Product Strategy CEO of carbon and energy accounting software startup Verisae, offered some other examples of how automated data collection can be incorporated into carbon platforms. Verisae has so far specialized in retail grocery chains, with customers including Dutch chain Ahold and British chain Tesco’s US subsidiary Fresh & Easy, and has incorporated such data points as energy use and greenhouse gas leakage data from refrigerator units as part of its dashboard, he said.

3). Will environmental health and safety incumbents hold an advantage in future markets? For decades, companies such as oil refiners and utilities have needed to track their air, water and waste emissions. That field has been dominated by a handful of companies such as Enviance, IHS and ProcessMAP — names not as well known as the SAP’s and Microsoft’s of the world, but with a growing interest in challenging the enterprise giants and startups alike in carbon management.

Enviance, a 10-year-old company with customers including CH2MHill, Chevron, Georgia Power, Southern Co., AEP, DuPont and Valero, sees a big advantage in its expertise in the field, according to founder and CEO Larry Goldenhersh. While enterprise software giants might have a bigger corporate customer base, meeting emerging regulatory requirements may well lead corporations to consider “a piece of software that has embedded in it an understanding of the chemistry and physics of greenhouse gas,” he said.

While the US market lacks carbon cap-and-trade, the EPA is seeking to regulate carbon dioxide emissions under the Clean Air Act, and the Securities and Exchange Commission plans to put in place rules that require reporting climate change risks as part of corporate earnings statements, he noted. Furthermore, companies such as Wal-Mart, PepsiCo, IBM and many others are asking their suppliers to begin tracking and reporting emissions data as well, he said. “Nobody believes that legacy enterprise software is going to be the way to measure the 75 percent of carbon that sits in the supply chain,” he said — a contention that the enterprise giants are sure to contest.

4). How will startups compete with — or integrate with — established corporate enterprise software platforms? SAP, SAS and CA are among the big enterprise software companies that have rolled out carbon management offerings in the past year, and many industry observers are anticipating more aggressive moves from the likes of Oracle, IBM and Microsoft.

In SAP’s case, the German software giant bought carbon accounting startup Clear Standards last year, rebranded it as SAP Carbon Impact and has since landed customers including Sun Power, Intuit, Autodesk, and the University of Buffalo. Anirban Chakrabarti, Clear Standards’ former CEO and now SVP of SAP Carbon Impact, said that carbon management will eventually become “part and parcel of everything that a company does,” from evaluating the carbon footprints of suppliers sources to measuring the “embodied energy” of products, he said. While startups may seek to compete in this field, “behind me is a company with 90,000 customers and a top 50 brand,” Chakrabarti noted. “We’re going to go after every market opportunity that is a natural fit for us.”

On the other hand, startups could carve out ways to integrate with the enterprise software giants without being acquired, Hara’s Waibel noted. “Those systems are optimized for financial management, but they may not have the right information” to provide insight into energy and emissions patterns, he noted.

Others startups are looking at different ways to help the enterprise giants get at such data, noted Gavin Starks, CEO of AMEE. The British-based startup is putting together a database of all the different standards for carbon data, whether those are different standards for collecting data or reporting it. In that sense, AMEE has a “position in the market entirely different than the application vendors,” he said. Rather, “Our target is to have all the application vendors use AMEE.”

AMEE’s customers include Morgan Stanley, Google, Sun Microsystems and the UK Government’s Department of Energy and Climate Change. Another customer is software giant SAS, which is using AMEE to give its customers access to up-to-date emissions data. As Starks put it, “content providers are coming to AMEE asking how can they represent their content… to the SAPs, SASs and Haras of the world.”

5). Will energy efficiency services provide a foot in the door for carbon management of the corporate market? Given that energy use — electricity and transportation fuel, mainly — are the main drivers of carbon emissions for most companies, a lot of the carbon accounting startups are focusing on energy efficiency. As SAP’s Chakrabarti noted, “carbon management software needs to incorporate within it robust energy management capabilities that essentially create visibility – how much energy is being purchased, and where that energy is being deployed.”

Hara’s Waibel noted that the startup is looking for more sophisticated ways to bring that kind of energy data to its customers. One emerging field is incorporating data from building automation and energy metering systems such as Cisco’s Building Mediator, IBM Maximo and HP facility management systems, he said.

Enterprise software giant CA is also looking at building energy management as a key future market, said Terrence Clark, senior vice president and general manager of CA’s ecoSoftware group. CA has incorporated its data center management software into ecoSoftware’s broader set of carbon, sustainability, environmental, and operational energy management services. Growing from monitoring network routers and switches to managing HVAC systems and power distribution units (PDUs) is a natural next step, he said.

Verisae’s Hepperla noted that his startup’s system can be used to coordinate so-called “demand response” systems that turn down power usage in stores according to utility commands to shave peak power needs. While only a handful of Verisae’s 46 customers are now doing so, he sees a growing market for Verisae to compete against demand response incumbents such as Enernoc and Comverge.

For more research on sustainability software see GigaOM Pro (subscription required):

Why SAP’s Carbon Software Buy Matters

Cleantech Market Overview, Q1 2010

Image courtesy of Ryan Somma’s photostream.

By Jeff St. John

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