Wednesday, January 1, 2014

Energy Use: The Devil Inside

In several other posts, I've noted that energy is the both the Holy Grail and the Gordian Knot of environmental sustainability.  In the Pandora's box of environmental threats, anthropogenic climate change--aka, Global Warming--is the greatest scourge: on its own, it has the potential to destroy human civilization as it currently exists.  The corresponding loss of life, destruction of property and decimation of productive land and industrial capacity renders questions of clean air, clean water, arable land and food supplies almost totally irrelevant.  As a result, solving the Environmental Energy Crisis (not a shortage of fuel sources, but a shortage of the right type of fuel sources) lies at the center of the global need to migrate human activity to a sustainable model.

Crusaders sought the Holy Grail because it supposedly possessed mystical powers of salvation.  In this context, clean, zero-carbon energy is an industrial Holy Grail: it enables "afterlife" for modern industrial society, enabling us to live beyond our current energy accomodations, which appear to have a termination point somewhere around 550 PPM of atmospheric carbon.

But like the Holy Grail, zero-carbon energy is elusive.  In this respect, it is the Global Warming Gordian Knot: the bonds of energy consumption patterns, structural bias toward existing fuels and technologies, system realiability, economic considerations, backward compatibility with installed transportation and distribution infrastructure and--ironically--environmental regulation have tightly lashed the helm of the contemporary economy on a collision course with Fate.  Without a broad-based, international migration away from fossil-instensive feedstocks, the planet--and the civilizations, economies and capitalist systems it supports appear posed to collapse.

Energy in the Enterprise
There is a on-going (and some would argue, terminal) debate about what the solution to Global warming should "look like." Should it be a multi-lateral, internationally negotiated governmental fix?  Or should it be left to markets to resolve?  For sustainability officers in the enterprise, this debate is immaterial, because you already have a strategic mandate outside of any broader systemic response.  Beyond questions of environmental sustainabilility, your enterprise embraces the profit potential and competitive advantage of sustainability practices and is moving forward.  As you design your program, energy usage is thus a key component in achieving your goals.
In an ideal scenario, the enterprise will become a zero-net emitter of greenhouse gases resulting from fossil fuel driven energy systems.  Reaching a zero-emissions standard is a two-step process:
1.  Minimize useage of GHG-emitting energy and system inputs that have high levels of "embedded" energy;
2.  "Offset" that energy usage which cannot be eliminated from the production chain

In the first case, actual implementation will depend largely on the type of business you are running.  Manufacturers may need to install higher efficiency pumps and motors, utilize "load-building" software that optmizes transportation loads and reduces fuel waste, and install oversite controls in the supply chain;  Services companies may simply build-out renewable (solar; micro-wind) on-site to diminish reliance on fossil-driven grid energy, retro-fit buildings to improve on-site efficiency, and optimize business travel  for the sales force.

After the enterprise has done everything it can to wring energy waste out of its operational processes, there will still activities that generate carbon.  To achieve a goal of zero-net emissions, the enterprise must then engage in offset activities--the purchase of renewable energy credits, and forest offset products are leading candidates for this process.  These are available either through commercial brokerage services, or through bilateral contracts with originating project developers.  In either case, the enterprise must be cautious, ensuring that the products it buys are real, additional, verifiable and permanent.  If a product fails that four-prong test, the enterprise cannot reliably assert that its emissions activities have genuinely been negated.

The question often arises: if Sustainability is supposed to flow profit through to my bottom line, why am I incurring a hard cost in the form of offset purchases?  This is both a fair and important question: remember, sustainability is a viable strategy only if it does not raise operating costs (and preferable reduces them). So reconciling incremental costs with your sustainability program is essential to success. The first answer to the question is that reduction in energy costs will at least partially cover the cost of offset purchases. The firm realizes hard-dollar savings from reduced energy use, which then offsets the cost of offsets.

 The second answer is more subjective, because it depends largely on the industry and type of business you are managing and therefore your needs for energy inputs and thus your opportunities for reduced usage and increased efficiency will vary.  Generally speaking, overall savings from increased efficiency and lower costs of both energy inputs and waste management remediation (such as purchasing allowances for the emissions of SOX, NOX and/or particulate matter) counter offset costs and yield hard dollar savings.  (Note: this phenomenom will become increasingly important in jurisdictions that implement some sort of GHG control, such as either a cap and trade system or an emissions tax.  In such a case, those firms that have seen anticipated government controls and prepared for them realize immediate benefit in the form of compliance costs never expended.  Proper planning in the name of enviromental sustainability yields "preventative profit" instead of requiring expensive compliance payments.

Finally, it is worth noting that a willingness by your firm to purchase offsets is a powerful driver toward reducing GHG emissions from energy consumption.  Obviously, the less energy used, the lower the emission load that needs to be offset.  So there is a positive feedback loop: as the enterprise seeks to reduce its liability for offsets, it innovates in its core business activities--driving down offset costs certainly; but also further reducing energy needs and thus front-end energy costs.  As a result, Environmental Sustainabilty has mutually reinforcing  forces that move more dollars into the profit column.

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