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June 25, 2009

Energy Costs Rising, Regulations Imminent – Are You Ready?

George Ahn
CEO
TRIRIGA

While organizations remain uncertain about the specific effects and requirements of future greenhouse gas (GHG) legislation and regulation, one outcome is certain: any law that puts a price on carbon will increase energy costs.

To reduce vulnerability to energy cost increases, organizations must prepare now, and a comprehensive evaluation of energy use in facilities and real estate offers one of the best preparatory measures. Before carbon regulations hit, organizations need to accurately evaluate their real estate portfolios in order to understand their risk profiles and determine the best opportunities for energy efficiency improvements.

In one of my earlier articles, I introduced the notion that existing buildings, not just new buildings, are critical to a low-carbon economy, and that technology strategies drive building efficiency.

In light of pending GHG regulations, we must now consider how technology for enterprise sustainability – particularly software that increases energy efficiency of existing buildings – provides a critical safeguard against the rise in electricity costs resulting from climate change legislation and regulation.

A look at current GHG legislation under consideration underscores the increased urgency Washington’s new leadership places on climate change. The Obama administration has made climate change a top priority. Obama wants to establish a cap-and-trade program and reduce GHG emissions to 14 percent below 2005 levels by 2020.

The American Clean Energy and Security Act of 2009 proposed in March by Representatives Waxman and Markey includes a cap and trade program and a GHG emission reduction goal of 17 percent below 2005 levels by 2020, increasing to an 83 percent reduction by 2050. This bill was recently approved by the House Energy and Commerce Committee and now awaits approval by additional committees before moving for a House vote, expected this summer.

Meanwhile, the EPA has proposed mandatory GHG reporting for organizations with large carbon footprints, affecting an estimated 13,000 facilities in the U.S. Further, the EPA recently released an endangerment finding that GHG emissions endanger public health and welfare. With this finding, the EPA may decide to regulate GHG emissions under the Clean Air Act (CAA).

Organizations of all sizes must understand that, regardless of which proposals become laws, any regulation will, directly or indirectly, put a price on carbon emissions and increase energy prices to consumers. The only question is the extent to which the speed and scope of a GHG reduction scheme will increase prices. To anticipate and address the impending price increases now, start with buildings. Today, buildings represent 38 percent of carbon emissions and consume 72 percent of electricity, according to the U.S. Green Building Council. They offer the single-greatest opportunity to improve both energy efficiency and operating costs.

Organizations can perform a comprehensive, portfolio-wide evaluation of energy use for their real estate to identify underperforming facilities and determine areas for both immediate and long-term improvements.

In order to cost-effectively improve energy efficiency, organizations need to categorize abatement opportunities to identify those that are most valuable. For example, operational changes like adjusted temperature settings require little investment, build awareness to change employee behavior, and save energy. More comprehensive engineered changes, such as high-efficiency HVAC systems, require a larger capital investment but may also deliver a higher return. The key to selecting energy improvement opportunities is the ability to focus resources and capital budgets on those projects that deliver the greatest financial and environmental returns.

Organizations with large real estate portfolios benefit from enterprise-wide software that performs accurate energy measurement across all buildings and allows management to select the most effective energy-efficiency projects.

Regardless of the tools used and the measures taken, a focus on the energy efficiency of facilities ensures adequate and necessary preparation for rising fuel costs. Ask yourself whether or not your buildings are on a low-carbon plan, and if not, address the environmental performance of your facilities today to avoid financial challenges down the road.

George Ahn is President and Chief Executive Officer of TRIRIGA. He has more than 18 years of software industry leadership.

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