How energy efficiency helps business prepare for carbon pricing

How energy efficiency helps business prepare for carbon pricing

75 percent of the largest organizations and 82 percent of all others feel they would be better off or unaffected if a mandatory price on carbon were instituted.

Breakthroughs in renewable energy, energy storage and energy efficiency are inching us toward a low-carbon future, but far too slowly. One of the main drags is that the market prices of coal, oil and gas include almost none of the costs of carbon pollution.

Putting a price on carbon will transform energy investment, re-shape consumption, and sharply reduce the carbon emissions that are driving global warming, according to the Carbon Tax Center. This “upstream” tax would target the carbon contents of fossil fuels, including coal, oil and natural gas, as well as biofuels.

In the United States, Congress has idled on any kind of significant climate change action, and many who oppose it maintain that implementing a national carbon tax would have dire economic consequences.

The business community disagrees. Some 75 percent of the largest organizations — those with revenues between $1 billion and $10 billion — and 82 percent of all others feel they would be better off or unaffected if a mandatory price on carbon were instituted, according to new research from GreenBiz and Ingersoll Rand. The findings generally were consistent across industries with no clear industry segments that would win or lose based upon the implementation of a carbon tax.

The report, "Accountability For Climate Action: How Corporations Are Tackling Climate Change," surveyed executives and thought leaders in the area of corporate environmental strategy and performance to gauge how corporations are tackling climate change.

“There’s been a steady drumbeat of indicators that policy and markets around carbon and carbon pricing are coming and are already here in some places,” Owen Smith, co-author of the report and director of Global Energy Policy & Strategy at Ingersoll Rand, told GreenBiz. “Businesses have been seeing the signposts and have been preparing.”

Last December, the historic climate treaty coming out of COP21 in Paris reinforced the likelihood of an impending price on carbon when the international community agreed to keep a global temperature rise well below 2 degrees Celsius this century, and to drive efforts of a 1.5 C limit above pre-industrial levels. Around 75 percent of known fossil fuel reserves must be kept in the ground if the world is to avert the worst effects of climate change, according to the Earth League group of leading scientists and economists.

“The economics of making investments in carbon reductions or efficiency gains or integration of renewables have been improving,” Smith said. “There’s a lot more options available to companies today and there are a lot more economical options than there were a few years ago. Companies have the latitude and the wherewithal to position themselves to deal with carbon pricing, and increasingly are seeing it as a business opportunity.”

Energy efficiency is king of climate action

Ninety-Five percent of all organizations that have set goals for carbon dioxide and greenhouse gas reductions have established a commitment to energy efficiency, the GreenBiz research found. Likewise, energy efficiency currently has more programmatic support than investments in renewable energy across companies of all sizes.

Energy efficiency may be the world’s “first fuel”, but it’s also its least glitzy. From a stakeholder perspective, it can be less tangible or visible, Smith said.

“CO2 and renewables might be the things you’re more likely to make public commitments about efficiency is something that you just do,” Smith said. “But the business case for conserving energy is very longstanding and so many companies have taken action to reduce their energy consumption and to be more efficient.”

The GreenBiz report found that more organizations have developed a specific strategy for meeting energy efficiency commitments than those related to direct carbon dioxide reduction or renewables.

But energy efficiency remains the easiest and most cost-effective way to cut energy use — particularly in the face of volatile and uncertain energy markets. Most organizations can achieve annual energy savings of 2 to 10 percent through better energy management, according to the U.S. Environmental Protection Agency Energy Star program.

Energy efficiency catalyzes renewables 

Energy efficiency has played an important role at companies that have made a renewable energy commitment — most companies that have committed to being powered by renewables also have committed to energy-efficiency initiatives, the GreenBiz report said.

And while there have been major commitments by businesses to power their operations through the use of renewable energy over the past year, still less than half (45 percent) of the largest companies have established a public commitment for the use of renewables. In most sectors, there are fewer commitments by large companies and overall only 30 percent of those large companies and 31 percent of small companies have made a public commitment to be powered by renewables.

On the flip side, nearly half of large organizations committing to clean energy isn’t half bad. The sectors leading the way on renewable energy adoption are government (100 percent of those surveyed), utilities (75 percent), consumer goods (71 percent), technology (53 percent) and industrial goods (50 percent).

With a carbon tax looming on the horizon, those organizations that already are making moves to reduce energy consumption and reliance on fossil fuels stand to win big.

“If it’s across the board, it’s a level playing field and so it doesn’t have an impact — either positive or negative for a majority,” said John Davies, co-author of the GreenBiz report and vice president and senior analyst at GreenBiz, discussing the business impacts of a price on carbon. “And then those who have already invested in efficiency or renewables will feel like they have a competitive edge."

Companies address supply chain climate impacts

As important as it may be for businesses to look inward to purge climate change drivers, many are recognizing that they also need to look outward at their extended value chains. More and more are asking suppliers to disclose information on approaches to climate and water risks and opportunities.

“The easiest way for a company to make a commitment is to look at their own operation and figure out how to reduce energy consumption or to integrate renewables or reduce carbon emissions… we were seeing this as a common step that companies were taking,” Ingersoll Rand’s Smith said.

“But we were also seeing that many companies were going well beyond that and also looking across the value chain — looking into their supply chain and at how their products might have environmental impacts and how to reduce the environmental impacts of the products that they sell.”

Mostly large organizations have been doing this — some 58 percent of the largest companies and 48 percent of large companies have conducted a carbon footprint analysis across their extended value chain while 67 percent of small organizations have not, the Greenbiz research showed. A similar number of the largest and large organizations also have made energy or emissions commitments that extend across at least some part of the value chain.