Achieving profitable carbon reduction

Achieving profitable carbon reduction

José María Figueres Olsen | President of Carbon War Room
Much that can be achieved in improving the energy efficiency of existing businesses, universities, and other institutions without new regulations or subsidies

Corporations, governments, and energy companies are finding record profits in strategies that exploit the revolution in energy efficiency and clean energy technology. Our organization, Rocky Mountain Institute-Carbon War Room, is at the forefront of this movement and is committed to working with partners and corporations on the implementation of profitable and innovative strategies in this field. After all, there is much that can be done here without new regulations or subsidies.

Office space as a value center

Let’s begin with something every institution has: commercial building space. We worked with the new owners of the Empire State Building to do an energy efficiency retrofit of the iconic 2.7 million square foot office building. The Empire State Building is in most respects (other than size) a fairly typical US office building. This includes similarities in its energy-use profile and in the return available on energy retrofit, which is substantial.
The cost-effective retrofit reduced annual energy use by 38% for an annual savings of $4.4 million, and also reduced the building’s annual carbon emissions by 4,000 metric tons. Today we are driving similar savings across the US federal government’s entire portfolio of buildings. In partnership with the General Services Administration (GSA), the US government’s landlord and the largest property owner in the country, we have been slashing energy use and creating significant savings on energy costs. The GSA has aggressive, long-term goals for energy reduction and we are meeting them using Energy Service Performance Contracts, a type of contract that requires no cash outlay and relies on saved energy costs to calculate compensation for the energy service companies that accomplish the retrofits. Across a sample of GSA retrofits, including an embassy complex, a naval base, and several suburban office campuses, we achieved an average 58% energy saving. These deep retrofits paid for themselves, and then some. The economics are so good that we are now working in the city of Chicago to do similar retrofits on 250 commercial buildings over the next 3 years, with more buildings in more cities to follow.

Utility-scale clean energy will soon be the only game in town

We are also working with major corporations on their renewable energy procurement through the Business Renewables Center (BRC). The BRC is an entity that we set up in partnership with founding corporate members including General Motors, Bloomberg, and HP, along with leading renewable energy project developers, as well as transaction intermediaries. Working together, the partners in the BRC streamline and accelerate the corporate procurement of wind and utility-scale solar energy, and we are making off-site renewable energy simple, fast and effective.
The BRC is working to innovate and scale market transactions. In this, as in so many other areas of energy efficiency and clean energy, institutions are scrambling to keep up with technology. Wind power is already cheaper than any other utility-scale energy source in many areas of the US without subsidies, and the price continues to fall. The cost of solar continues its downward trend of the last years. Our efforts are targeted at helping corporations evolve their business models to take advantage of the profit opportunities that maturing wind and solar technologies make available.
The market is scaling up rapidly: corporate procurement of utility-scale renewable energy reached a record 1.2 GW in 2014, and the market had already hit 1.4 GW by August of 2015. Nearly 75% of those deals involved a Business Renewables Center advisor, member and/or sponsor. Today, the BRC’s corporate members have a collective market capitalization of $1.4 trillion and consume 36 TWh of electricity per year. They are also sharing their knowledge widely.

Emissions reductions from shipping

90% of global trade moves by ship, and the carbon footprint of all this commerce is huge - shipping emits more CO2 than Germany, the world's fourth-largest economy, exceeding one billion tons per year. Global shipping is another area where we are making concrete, large-scale reductions in carbon emissions while increasing profitability. Evolution in shipping markets, business models, and information sharing is the limiting factor holding existing available technologies back from realizing monetary value and deep emissions cuts. We have been tackling that head on by promoting and piloting a basket of self-financing energy efficiency technologies which, when deployed together, boost a ship's fuel efficiency by 10-15% and are paid for out of the resulting fuel savings, which can reach $2 million per year for the largest ships. We are also working to optimize the alignment of incentives in the shipping industry, where fuel costs are often borne by the shippers of goods who do not control the fuel efficiency of the shipper's fleets. So that cargo owners can steer their business to the most efficient ships, we worked with the premier maritime risk-vetting firm, RightShip, to develop a freely available A to G rating system for every ship in the business. Then we worked with the largest cargo-shippers in the world so they would favor the cleanest "A' ships and shun the dirtiest "G' ships. Just 4 years into this effort, 1/5 of the world's shipped cargo - about 2 billion tons on about 25,000 voyages - moves in ships chosen with the A to G system. As cargo-owners and ship-charterers move away from the least efficient ships, those ships are becoming less and less profitable. The market is catching up to this fact and the banks that finance the shipping industry are taking note, including HSH Nordbank and KfW IPEX-Bank. Lenders with a loan volume of more than $40 billion now consider a ship's efficiency before making a loan, and at least one private-equity firm is in the business of financing energy retrofits of shipping fleets. Ports around the world and the Liberian ship registry, the world's second-largest, are also offering preferential rates for the most efficient ships.

Trucking fleets are carrying hidden value

We are also making great strides in trucking, where fuel efficiency has historically been much lower than in shipping and is even more amenable to improvement with today’s technologies. In fact, we calculate that the US trucking industry spends about $40 billion more per year than currently available technologies could allow.
Our trucking experts regularly publish confidence reports on this growing array of profitable technologies - about 70 to date - so that trucking-fleet owners and operators can rely on information they can trust. This spurs adoption beyond what vendors can do on their own.
Last year, US trucking fleets using technologies that we vetted saved about $500 million and cut their emissions by nearly 20%. Furthermore we’re not just a trusted voice within industry, but we work to be heard by all institutions. Our meetings with federal agencies helped inform the new fuel economy and emissions standards announced by the federal government in June. The proposed standards will save about 1.8 billion barrels of oil and cut greenhouse gas emissions by about one billion metric tons.

Carbon pricing improves already positive economics

As these examples demonstrate, we are making great strides using technologies that are profitable at today’s prices without subsidies or carbon pricing. The call for carbon pricing by Europe’s top 6 oil companies (and others), while an encouraging sign of the clear-eyed response to climate change among the global corporate community, is not absolutely critical to reducing CO2 emissions. The economic fundamentals of energy efficiency and clean energy are already so advantageous that the benefit of possible future carbon pricing, while real, could go a much longer way to make winning propositions even better than flipping losing propositions into the black.

Catching up with the technological revolution

We live in a world where energy efficiency and clean energy technology is outpacing the capacity of most businesses to exploit it optimally. Just as it took years for the business community to fully take advantage of the digital revolution, industry is somewhat challenged today with catching up to what has been made possible by the energy revolution. That is another reason why we work diligently to innovate new strategies that capitalize on these new opportunities, which can scale rapidly with robust business models supporting them. As I often say, "there is no Planet B," and thus the need to ensure we continue our path towards increased wellbeing around the world, while significantly lowering carbon emissions.