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Climate Legislation: Catalyst for Energy Efficiency

In the business world, discussions over the proposed climate and energy bill now before the Senate focus on cap-and-trade, the mechanism by which power companies will be rewarded for producing more energy through solar and wind sources and discouraged from continuing to use coal and other sources that release carbon dioxide and other greenhouse gases into the air.[IMGCAP(1)]Corporate supporters of the American Clean Energy and Security Act believe the establishment of a market for renewable energy credits is necessary to address the threat of climate change and to avoid other problems associated with oil and coal. Critics say it will drive up electric rates as power companies pass through the increased cost of generating renewable energy to their customers.But this debate on one aspect of the bill ignores its overarching intent and misses a big opportunity that ACES presents to U.S. businesses. If the bill is about promoting renewable energy, it is even more about catalyzing energy efficiency, a goal likely to save companies far more money than cap-and-trade will cost them. If ACES makes a kilowatt-hour cost more, it also offers ways for companies to use fewer of them. So, while electricity rates may increase modestly, the actual bills that businesses pay will go down. For most companies outside the manufacturing sector, the majority of electricity used comes from the facilities they own and lease: heating, ventilation, air conditioning, lighting, computers and other machines in buildings are collectively responsible for nearly 40 percent of all energy use and a similar percentage of total greenhouse gas emissions in the United States. In some U.S. cities, buildings are responsible for three-quarters of all emissions.Energy use can be significantly reduced in commercial buildings with little or no upfront cost. Simple things like turning lights off at night can save 10 percent or more. Professional building managers can save another 10 to 15 percent by tweaking HVAC systems.Even greater reductions are possible for owners who can spend the money. New York’s Empire State Building, for example, recently embarked on a $20 million energy retrofit that will pay for itself within a few years. A team led by Jones Lang LaSalle determined that the retrofit will reduce the building’s carbon dioxide emissions by 105,000 metric tons over 15 years, equivalent to the annual emissions of 17,500 cars.When the work is done, the 102-story art deco skyscraper will be more energy efficient than 90 percent of all office buildings, using half the energy per square foot of an average building. Consider the huge reductions in carbon dioxide, not to mention the enormous cost savings, if owners of the tens of thousands of other large buildings around the country would invest the time and money to maximize efficiency.Under ACES, many will. The bill’s Retrofit for Energy and Environmental Performance program establishes a national building code mandating energy improvements in existing buildings compared to the baseline 2005 level: At the start of 2018, buildings would need to use 5 percent less energy than the baseline, with additional 5 percent efficiency improvements every three years culminating in a 25 percent improvement by January 2030. REEP also creates mechanisms for public funding, loan guarantees, interest subsidies and other credit support to help owners make energy improvements. Requiring owners to enhance efficiency while providing the means to do so represents a balanced solution that will put a big dent in greenhouse gas emissions.If the 70 percent of electricity use that comes from buildings could be cut by a third in 10 years and by half in 20 years, what would be the effect on the cap-and-trade system? With less demand for electricity from the commercial sector, power companies may discover they can stay within their capped emission levels without relying heavily on renewable sources.In addition, the push for energy reduction has positive effects on the economy. Not only does it create jobs in many industries, but it ultimately makes businesses operate more cost-efficiently, a key driver of profitability.Ultimately, though, the best reason to pursue energy conservation is the most universal: Economic growth based on nonrenewable energy sources is a model that cannot be sustained indefinitely. As we have seen with the recent economic meltdown, turning a blind eye to growing problems only makes dealing with them later much more painful. The need for energy action is apparent. An effective, sensible action plan is on the table. We should seize this opportunity.Lauralee Martin is chief operating and financial officer of Jones Lang LaSalle, a global financial and professional services firm specializing in real estate. Mindy Lubber is president of Ceres, a coalition of investors and environmental groups that coordinates Business for Innovative Climate and Energy Policy.