Could energy efficiency be a lemon? Two tips to make sure it bears fruit

Energy efficiency is widely heralded as one of  most greatest and easiest opportunities to reduce greenhouse gas emissions.  But a lengthy November 2012 essay called “Rotten Fruit” from Auden Schendler – author of the book “Getting Green Done” – suggests that energy efficiency is not a low hanging fruit, but a rotten one.  This article summarises the recommendations for sustainability departments and offers some additional perspectives.

This year I will embark on a research project that seeks to learn about the energy efficiency strategies of Australian industries.  Consequently, this blog will probably tend to lean more towards energy efficiency than the broad scope of corporate and international sustainability issues it covered last year.  The interest in energy efficiency comes from the countless references advocating it as a highly compelling climate change mitigation strategy, arguably the most cost-effective and attractive.  This is not without its critics, and last year I read an interesting essay by Auden Schendler, the Vice President of Sustainability at Aspen Skiing Company and author of the book “Getting Green Done: Hard Truths from the Front Lines of the Sustainability Revolution“.  I read it on Climate Progress but it was originally published by EDC Magazine.

Schendler appears to be arguing that only the most obvious energy efficiency projects are selected, those with a fast growing return on investment (ROI) and simple organisational change.  Where it is assumed by consultants and experts that an organisation would then continue to climb the tree to the more difficult energy efficiency projects, he writes that this rarely actually happens.  As a proportion of total greenhouse gas emissions, these no-brainer projects merely represent a grape in a fruit salad.

This is already known, but it serves as an introduction to Schendler’s provocative viewpoint:

But my experience suggests that while that may happen sometimes, the mainstream reality is less rosy. In fact, picking the low-hanging fruit, while cutting emissions and creating great PR, actually hurts deeper sustainability and prevents firms, governments and households from undertaking more comprehensive efficiency.

Why is this the case?  Firstly, the low-hanging fruit distort expectations about a reasonable ROI for an energy efficiency project, setting thresholds too high for many projects.  More importantly, the independent completion of high ROI project prevents a “bundling” strategy, where high ROI energy efficiency tasks are packaged with low ROI tasks to create one energy efficiency project that meets the ROI threshold.  This is a novel approach: instead of a simple process of identifying the project and comparing against an internal project criteria (ROI) for whether to implement it, the idea is to set criteria organisation-wide and determine the optimal mix of projects to get there.  Kind of like a buffet instead of a menu.  In my preliminary investigation of the literature on energy efficiency for my dissertation, I have observed a tendency to look at individual projects.  There is little suggestion of bundling.

A second reason is that the selection of energy efficiency projects is distorted by over-simplified ROI calculations.  The main issue being that ROI ignores indirect benefits – “better insulation lets you reduce the size and capital cost of your heating system” – and neglects indirect costs – “old equipment has a maintenance cost, including spare parts, staff labor and service visits”.  Schendler explores many more examples.

While Schendler positioned his essay early on as a potentially controversial take on energy efficiency in business, he concludes with the same ambitions and hopes as its advocates: that energy efficiency is a powerful mitigation opportunity.  Only he hopes it is done right.   The dangers are clear, society needs energy efficiency mitigation to be much more than superficial.  This article urges organisations to think deeper about its energy efficiency strategies.  Sustainability departments should not rush to implement high-ROI energy efficiency projects.  Instead, they should scope the situation first to understand the projects available and how they compare to an overall energy efficiency goal.  Projects should be bundled together to allow projects with low individual ROIs and high efficiency numbers the chance to be implemented.  Extraordinarily high ROI projects should be discouraged to avoid precedent.