Combining Economics, Energy, Efficiency and Emissions into New Business Model
May 19, 2005. Plymouth, WI. Some longtime U.S. energy watchers may be excused for calling May 9, 2005 an important date in the history of energy in the United States. Like most such dates, May 9th was not a day with screaming newspaper headlines or compelling TV footage. In fact, if you did not open the Wall Street Journal to page 2 or the eight page advertisement insert on pages 9 through 16, you may have missed the news event all together.
Lost among the usual business news about oil, Chapter 11 and American consumers, General Electric announced that it had begun an environmental strategy, replete with the necessary marketing lobbying muscle, designed to establish GE as an environmental leader and create a significant new profit center for the company. In one bright moment, GE – the U.S.’s largest company- has caught up with the U.S.’s largest state, California, who has been systemically building a market for “clean power” technologies and emissions reporting over the last three or four years.
In particular, GE has set a series of “green” goals for itself, which include the doubling of its research and development budget on new environmentally friendly technologies to $1.5 billion, doubling its sales of eco-friendly technologies and services to $20 billion within the next five years, reducing its greenhouse gas emissions by 1% in 2012 while growing its overall sales by 35 to 40%, improving its own energy efficiency by 30% by 2012, and publicly reporting on its progress toward carbon reductions, better known as greenhouse gases, on an annual basis.
While several other U.S. multinational companies have been calling for a “cap and trade” emission market in the U.S. that would resemble the Kyoto emission mandates, a company with GE’s prestige brings a new stature to the idea of controlling carbon emissions by rewarding companies who are good environmental stewards and charging companies who are not. Until federally mandated, carbon dioxide trading is being done by a voluntary program being run by the Chicago Climate Exchange, whose mission is to test and perfect a market-based approach to global warming through the use of a “cap and trade” system.
GE’s CEO Jeffrey Immelt is expected to call on the energy industry to take a leadership role in dealing with carbon-dioxide emissions. Currently, American power plants create one half of all carbon-dioxide emission in the U.S. Immelt also favors a federal mandate for a specific percentage of electricity from “renewable” energy sources like wind and solar. Currently, nineteen states like California and Wisconsin and European countries like Germany and Sweden already have similar renewable programs.
The fact that GE is making a commitment to a comprehensive marketing, investment and policy program that addresses environmental issues like global change represents an important moment in the field of energy. GE has now confirmed what many of us in the energy efficiency marketplace have known for some time: the energy/environmental sector can be a significant new business opportunity with robust revenue and profit streams plus explosive job creation possibilities. It is not just another burden on existing businesses, but a way to control energy costs and improve global competitiveness.
With GE’s full faith and credit behind the economics of energy efficiency and renewables, the Golden State has a very valuable ally going forward. California has already committed to several large “clean power” initiatives for renewables like solar and wind and a multi-layered program for energy efficiency, a rigorous protocol for measuring and verifying greenhouse gas emissions in its Climate Registry program and a remarkable statewide effort, through its Public Interest Energy Research Program (PIER) and the California Lighting Technology Center (CLTC), to identify and nurture emerging new energy efficient technologies. In fact, California is quietly remaking its energy markets in such a way that all other states would be wise to study, especially the de-coupling of utility sales from utility profits which makes California utilities revenue neutral when they stimulate the use of energy-efficient products.
With the California energy crisis of 2001 as a backdrop, they have built a broad-based coalition of politicians, regulators, environmental groups, utilities, the private sector and the CA University system around which a whole series of new practical programs and market-based initiatives are built.
For example, California’s Action Plan has placed energy efficiency at the top of the “loading order” of resources to supply new energy, because it recognizes that energy efficiency minimizes the need for new power plants, reduces emissions of pollutants and greenhouse gases, improves electricity reliability and stabilizes energy costs. To that end, California has committed $1 billion per year toward energy efficiency for the next ten years. They have targeted electricity savings that represent 55% to 59% of the expected new electrical demand. With a ten year horizon, California finally has some regulatory certainty to execute a comprehensive energy policy.
The Conclusion
It is never too late to get economics, energy, efficiency and emissions right. Take California. It has gone from the brunt of energy jokes to a national leader on energy policy. Or take GE. It has gone from a traditional American company with energy and environmental issues and now it is an environmental and energy leader. According to CEO Immelt, “We’re at a tipping point where energy efficiency and emission reductions also equal profitability.” Until a mandatory system for trading emissions is established, the best first choice for “clean power” is provided by the good economics of energy efficiency and the future profitability of emission reductions is free to those companies willing to join GE and California’s environmental leadership.
–Stephen A. Heins is VP of Corporate Communication for Orion Energy Systems.
