Wharton Professor Innovates Energy-Saving TerraPass Karl Ulrich and MBA Students Design and Market Unique New Product
"For as long as I can remember," says KarlUlrich, CIBC Professor, Professor of Operations and Information Management, and Chair of Wharton's Operations and Information Management Department, "I've advocated green taxes — carbon taxes, gas tax. And I got to thinking, ‘What's stopping me from paying a gas tax? I can pay that tax.'"
At a time when fuel costs, gas taxes, and hybrid vehicles are more in the news than ever, Ulrich — together with 41 of his MBA students — innovated a real-world product called TerraPass, which gives consumers a way to compensate for car pollution.
The TerraPass system, first created in Ulrich's MBA class on "Problem Solving: Design and System Improvement" in fall 2004, charges customers an annual fee, proportional to the size of each customer's car, which then helps fund organizations devoted to energy reduction and conservation.
TerraPass Designed and Marketed by MBA Students
Like many Wharton faculty members, Ulrich has a history of real-world entrepreneurship: he invented the Xootr adult scooter and co-owns the company that makes and sells them.
Once he came up with the idea for TerraPass, he brought it to his class to create the name, design the logo, and market the product.
"I wouldn't characterize any of us as hardcore environmentalists," recalls Tom Arnold, WG'05, an MBA student in that class who started as TerraPass' sales manager and is now its Chief Environmental Officer. But the students soon warmed to the idea, he says, because "it was real and entrepreneurial," even though they initially thought, "‘We can't actually launch a business in six weeks.'"
The class divided into teams to handle such tasks as product development, pricing, marketing, and sales. Ulrich provided $5000 of his own money as a no-interest loan, repayable whenever TerraPass can afford it. The students and Penn co-own the company.
On Nov. 23, 2004, TerraPass began selling annual memberships. Customers paid $30 to $80 a year, depending on how much carbon dioxide their cars emit in a year. Owners of gas-electric hybrids pay the least; owners of SUVs and trucks contribute the most.
"We really forced the launch, and it wasn't pretty, but we came out, had a test, and got some nibbles," Arnold recounts. "Whereas a lot of entrepreneurial programs focus on crafting the perfect business plan, we did it backwards. We launched the business and then wrote the plan."
By the time the students made their final class presentation on Dec. 9, they had sold 149 memberships.
TerraPass Becomes a Real Business
Many class projects would have stopped there. But a group of nine MBA students decided to develop TerraPass as a real-world business.
By early February 2005, they had sold almost 300 memberships and were aiming to raise money from investors. They saw a flurry of purchases in January, when The Los Angeles Times ran an article on the company. Since then, the company has received extensive press coverage in such publications as Fortune, Wired, Slate, The Philadelphia Inquirer, San Francisco Magazine, and Philadelphia Weekly.
In that same month, the company entered into its first pollution-cutting deals, buying 359 megawatt hours of power from a wind farm in Minnesota, which would prevent about 300 tons of carbon dioxide from being emitted by coal-fired power plants.
The company also entered into transactions on the Chicago Climate Exchange, which matches investors with companies that need money for pollution-reduction projects. And its third initial investment went to a cow-manure digester, which captures the methane emitted by manure and burns it to generate power.
To date, TerraPass members have saved almost 21 million pounds of carbon dioxide, with investments split among industrial efficiency, greenhouse gas, and clean energy projects.
"I don't believe that any one of us can take an action that's going to result in a measurable change in the environment, to, say, reduce the temperature of the earth," says Ulrich. "TerraPass isn't going to do that. It's just too small. But if it starts to build momentum around a big idea, it could have a huge impact."
