Is The Climate Right For A Commitment?
Strong scientific consensus and growing public awareness have made climate change a major public issue. Usually, serious environmental concerns have been addressed by Washington. But that’s not the case with climate change. As a result, an array of voluntary programs has sprung up. These programs ask corporations and institutions to make voluntary commitments to reduce greenhouse gas emissions.
Such commitments are often made high in the C-suite. Sometimes a firm’s mission statement may be the driving factor, or pressure from well-intentioned board members. Or it may simply make business sense. Although motivations differ, such initiatives have one thing in common: Because greenhouse gas emissions are driven by energy consumption, facility executives are in a prime position to prevent a company from unknowingly making promises it can’t keep.
While these programs will never have the impact of federal action, they can encourage individual companies to reduce their greenhouse gas emissions. However, it is useless for organizations to make commitments they later conclude are too expensive. To avoid problems, facility executives should encourage CEOs and building owners to analyze the potential impacts of a voluntary commitment before signing on with one of these programs.
For companies looking to shrink their carbon footprint, targeting buildings is a natural step. The Building Owners and Managers Association (BOMA) has indicated that energy consumption in commercial buildings accounts for 18 percent of U.S. greenhouse gas emissions. Other organizations cite higher numbers when apartment houses and corporate travel are included. Most observers agree that non-industrial firms owning and operating buildings can reduce the climate impact of their facilities.
Lack of regulation on climate change at the federal level, however, has resulted in more than a dozen separate and uncoordinated efforts that are now seeking promises to help control global warming. While nearly all involve energy efficiency, recycling, or use of renewable energy sources, others also seek commitments on unrelated issues. Many groups are pushing for reductions in on-site energy use ranging from 15 percent to 30 percent, with an overall goal of achieving carbon neutrality. That typically means offsetting fossil fuel energy use by a facility with payments that help develop renewable energy sources.
Good Publicity and Bad Publicity
Because the programs are voluntary, there is no financial penalty if a commitment is not met. But failing to live up to a commitment could hurt the corporate image of a large firm or institution and prove embarrassing to board members. Consider what happened to one private university that hadn’t signed a climate commitment. A third-party organization gave the university a “D-” on a report card for failing to take actions to reduce its climate impact. The grade was widely publicized, causing consternation at the next board meeting.
In reality, the university had pursued a variety of energy and water efficiency efforts over the last decade, but did not showcase its efforts on its Web site or in the media. Worse, it failed to respond to a mail-in survey from the commitment organization. As a result, the organization wasn’t aware the university had tried to control its energy use.
Many of the commitment organizations have said they plan to publish regular lists of how well their signatories are doing to meet their commitments.
Some commitments go beyond the goal of climate neutrality and include broader sustainability issues, such as waste disposal, choice of interior furnishings and using recycled construction materials. (See “A Potpourri of Pledges”) One organization pushing for sustainable actions also seeks commitments on biodiversity maintenance, wages, and employee health and safety, among other issues. Clearly, the wording of a commitment can make a big difference.
Where climate neutrality is a commitment goal, two concurrent steps are being pushed: cutting energy use by a certain percentage and covering what can’t be eliminated with offsets, which take several forms.
Renewable Energy Credits (RECs), sometimes called green tags, are typically associated with replacing a facility’s fossil-fueled electricity that causes carbon emissions with power from renewable sources, such as wind. Markets for RECs are governed by some state agencies or private exchanges. Money invested in RECs goes to renewable electricity projects.
Carbon credits are another option. They may be purchased through several private exchanges and offset carbon emitted on site, such as from a facility’s oil-fired boilers. Such offsets may financially assist a diverse set of programs ranging from planting trees, to installing solar collectors, to developing biofuels.
A third option pays for off-site energy efficiency projects that can demonstrate ongoing and verifiable reduction in carbon emissions. These so-called white tags are presently available only in Europe.
While markets for RECs are fairly well developed in the U.S., a lack of any legislated requirement for carbon credits and white tags means they haven’t yet found broad acceptance.
Not all commitment organizations have a deep understanding of existing offset markets. For example, one commitment calls for buying 15 percent of power from green sources within a year of signing. But in some of the 25 states presently pursuing renewable portfolio standards, a facility organization could already claim it is purchasing that 15 percent from renewable sources. The reason? In such states, utility power may already contain that level (or more) of green power.
How Many Greenbacks to Be Green?
When it comes to efficiency opportunities, many facilities have already picked their low-hanging fruit, so reaching higher on the tree usually means reaching deeper into the pocket. One commitment calls for cutting energy use by 30 percent. For a facility spending $3 per square foot per year on energy, a 30 percent cut would require saving $.90 per square foot per year. Let’s presume the facility has already taken measures that pay for themselves in three years or less without financial incentives — steps such as lamp and ballast upgrades, installation of lighting controls, and low- or no-cost building tune up measures. For a facility like that, paybacks for additional upgrades may be five to 10 years at average power prices. A 5-year payback translates into spending $4.50 per square foot, not including loan interest. A 10-year payback is closer to $9 per square foot.
Because of the wide variation in factors like energy rates and building types, it isn’t possible to provide a rule of thumb for estimating the cost of complying with commitments. If a facility has already picked its low-hanging fruit, achieving a further 30 percent reduction typically involves a high average cost per square foot. The only way to nail down an exact number is to conduct an energy audit and get realistic contractor bids.
Of course, the costs of energy upgrades should eventually be recouped via lower energy bills; in some cases, tax credits and rebates will also be available to reduce first costs. And if the energy measures improve comfort, an increase in occupant satisfaction is another benefit.
Meeting commitments may involve buying carbon offsets as well as investing in energy efficiency. Prices for offsets have ranged widely and been volatile. Purchasing them to counter carbon emissions generally raises the cost of energy by 10 to 25 percent, depending on a variety of factors. In countries where carbon offsets are mandatory, prices are much higher than in the United States. While U.S. carbon credits were selling for less than $5 per metric ton, prices in other nations ranged from $5 to $27, with many falling between $10 and $15 in late 2007. A price of $10 per ton roughly translates to about $.13 a gallon of #6 fuel oil.
RECs may raise the price of electricity by less than $.01/kWh to more than $.02/kWh. If a 250,000-square-foot building consumed power at 30 kWh per square foot per year, a REC price of $.015 per kWh would add about $113,000 a year to its electric bill. If its boilers burned .4 gallons per square foot per year, credits to offset carbon emissions could add about $10,000 to the annual fuel bill, for a total impact of about $123,000 a year.
Some facilities lack either the personnel or expertise to perform a greenhouse gas inventory or meet other commitment paperwork requirements. Recently, engineering, energy and environmental consultants have entered this line of business. The costs are extremely varied. Several large energy users have recently paid $10,000 to $100,000, depending on the size and type of facility, and number of sites. Calling themselves “carbon footprint verification and reduction providers,” such firms vary considerably in their overhead costs. The cost for several educational institutions, for example, ranged from $20,000 to more than $75,000 for essentially the same work. Clearly, it is worth bidding out such services.
Ultimately, organizations will have to decide how much to invest in measures to meet a commitment. Steps that have a long payback will cause an organization some financial pain — pain that will be assuaged by knowledge the organization is helping to address climate change and at the same time improving its image as a responsible corporate citizen. How much a corporation or institution will pay for those benefits varies from case to case. It is therefore important for the facility executive to understand the costs of a particular commitment before advising the organization to sign on.
For those willing to sign a carbon commitment, here are a few tips for mitigating risk and cost while complying with a pledge’s conditions.
Understand your emissions. When it comes to emissions, a facility executive may immediately think about the boiler plant fuel usage, but may fail to realize that the organization’s power consumption may cause an even higher level of emissions from the local power plant. Those off-site emissions must be included in an organization’s greenhouse gas inventory. In addition, airline travel, fleet vehicles, process loads and use of incinerators all should be taken into consideration.
Assess the savings potential before signing. To gauge the potential for easy savings, score your facility using the ENERGY STAR Portfolio Manager. While not an exact tool, scores below 40 (75 out of 100 is required to earn an ENERGY STAR Label) generally indicate good savings potential. If the score is much above 75, however, cutting by another 30 percent may be more difficult. Paybacks may be quite long. Using the ENERGY STAR tool involves no commitment and is free.
Take inventory. Performing a greenhouse gas inventory is the first step to calculating the possible costs of offsets. The Clean Air, Cool Planet Campus Carbon Calculator, version 5.0, is an Excel spreadsheet used by several commitment organizations. Download it for free at www.cleanair-coolplanet.org/toolkit/content/view/43/124/. Even if all the usage data is not immediately available, use what can be found to approximate this cost before committing to purchase offsets.
Compute before you commit. Approximate the highest and lowest cost of compliance prior to accepting or suggesting a commitment. Include charges for consultants, upgrades, offsets and public relations.
Read the manual. The commitment statement alone may not be sufficient to fully understand what is involved. Before signing anything, review the implementation manual and compliance forms to assess exactly what will be involved. Watch for language about political or employee-related actions or that requests involvement of other firms or constituents (staff, students, customers) that may otherwise be disinterested or averse to participating.
Think through the public exposure. Realize that a firm’s name and, in some cases, contact information, will appear on Web-accessible lists of participants that may be used or monitored by firms selling products and services.
Choose a commitment you can live with. Unless a strong, unified desire exists to push the envelope, it will probably be difficult to win funding for measures to cut emissions by a specific amount by a certain date. One may always seek such a goal without putting it in writing.
Shop, shop, shop. Everything is open to competition. Depending on where and how they are generated, prices of offsets may vary widely. A ton of carbon eliminated in Brazil, Wyoming, or Maine has the same climate impact as a ton in California or New Jersey. But the economics may differ. In one recent case, the cost to buy RECs for a mix of wind and low-head hydro — power from waterfalls once deemed too small to generate electricity — was only about a third of an all-wind option.
Shop wisely for a consultant. Although most should have no problem handling compliance paperwork, many lack the energy/offset procurement experience needed to minimize the total cost of compliance.
Look for additional benefits. Cutting energy use may make a facility eligible for local or federal tax credits, rebates or grants. Buying biofuels containing renewables may also offer tax deductions while cutting a company’s carbon footprint.
Look for shortcuts to information. When filling out compliance forms, energy bills are an obvious source of data, but also consider where in the firm other numbers may exist. Airline mileage, for example, might be available from the carrier through a frequent flyer program.
Climate change is an important environmental issue that deserves to be addressed. But signing on to pledges that cost far more than the organization expected and will be dropped during the next round of corporate budget tightening is not the way to do it. It’s the facility executive’s job to make sure that organizations look before they leap.
— Lindsay Audin
Colleges and universities being targeted by:
Local and/or state governments are urging corporate citizens through:
EPA and DOE have also issued numerous voluntary challenges and partnerships, none of which carry penalties. Examples include EPA’s Fortune 500 Green Power Partners (to roughly double green power use) and various community energy challenges that are seeking a 10 percent reduction in energy use by industrial and commercial buildings.
— Lindsay Audin
Lindsay Audin is president of EnergyWiz, an energy consulting firm based in Croton, N.Y. He is a contributing editor for Building Operating Management.