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Energy Efficiency Benefits Bottom Line

Our busy lives demand an extraordinary amount of energy usage—illuminating our homes and work environments, powering the equipment and appliances that provide necessities and comfort, and transporting us from place to place. Beyond the increased costs at the gas pump, there is increasing concern about the demands on the earth's oil reserves, which cannot be replenished and may well be exhausted within the space of our lifetimes.

A Situation of Concern

Because oil is one of the principal sources of energy generation, all members of society and its institutions are affected by fuel prices. This situation is of tremendous concern to many in the business community, who understand that implementing energy-efficient programs and policies are an investment in long-term cost savings. Because oil reserves are limited in supply and international politics often determine their sources and costs, businesses are wise to look ahead to anticipate future fuel increases. It often takes only a short time for the return on investment in energy efficiency practices and technologies to confirm that its implementation was a wise fiscal decision.

In the short term, the U.S. Department of Energy’s Energy Information Administration (EIA) forecasts that “continued steady world oil demand growth, combined with only modest increases in world spare oil production capacity and the continuing risks of geopolitical instability, are expected to keep crude oil prices high through 2006.” In addition, with the onset of hurricane season, there is the potential for “significant new outages in the Gulf [of Mexico that] could add volatility to near-term prices, particularly in the latter part of the summer.” In the long term, the EIA predicts that global oil resources are dwindling and will meet growing worldwide demand for only another 25 years—a chilling prospect considering our widespread consumption over the last century and the increasing demand in other regions of the world.

The Alliance to Save Energy, a coalition of business, government, environmental, and consumer leaders, explains the difference between energy conservation and energy efficiency, in which conservation is associated with “doing with less or doing without, of being uncomfortable or less comfortable” and efficiency “takes advantage of advances in technology to provide significantly better, smarter services.” This distinction is critical in thinking about ways to offset increased energy costs for the short-term, and will be invaluable for long-term savings.

The Bottom Line

Businesses have a great deal to gain from implementing energy management strategies. According to Flex Your Power, California’s energy conservation campaign, “California businesses collectively spend more than $15 billion a year on heating, cooling, lighting, and other energy uses.” Flex Your Power further states, “Organizations that implement energy-efficient measures outperform their competitors by as much as 10%.” Business for Social Responsibility (BSR), a global membership organization whose local members include Adobe, Agilent Technologies, HP, IBM, and Oracle, provides resources for incorporating responsible practices into business strategies and operations. According to BSR, “one of the strongest business arguments for energy efficiency is that its benefits can be easily forecasted, measured, and calculated. It is one of the most effective means of providing bottom-line cost savings, as well as enhanced business value.”

CNBC and MSNBC reported in March 2006, “Some 65 percent of U.S. companies think that escalating energy prices pose a potential roadblock to their company's growth over the next 12 months,” according to a survey conducted by PricewaterhouseCoopers in 2005. According to Pacific Gas & Electric, the cost of electricity generation increases with higher gas prices. Energy costs are often taken for granted as they are typically incorporated into routine operations costs, but with innovative thinking and a multitude of resources, companies can make dramatic changes to their financial situation.

Companies such as Adobe and 3M are seeing the financial value in long-term planning for energy consumption. According to Randy Knox, Adobe’s director of real estate, facilities and security, “In 2001, Adobe initiated a comprehensive green program, which has helped us more effectively manage through the current rise in fuel costs. By employing technology and frugality to save water and power, reduce waste and improve air quality, Adobe has reduced energy by more than 23 percent over the past five years.” Additionally, 3M implemented improvements of 28 percent in their energy productivity between 2000 and 2004, resulting in cost savings of $190 million.

The Benefits of Conservation

The Energy Policy Act of 2005 offers federal tax credits for purchasing energy-efficient appliances and products, as well as purchasing buildings or making improvements to commercial buildings for energy efficiency. Energy Star, a program that promotes energy-efficient products and practices, is a joint effort of the U.S. Department of Energy and the U.S. Environmental Protection Agency. Through Energy Star, businesses can assess cost savings, create benchmarks for their facilities, learn about energy efficiency strategies, and locate energy-efficient office equipment. PG&E offers rebates and incentives to commercial customers for “projects involving replacement of existing equipment or systems with new high-efficiency equipment or systems.” These might include motion-detector and low-energy consumption lighting systems, efficient HVAC systems, and other technologies. In addition, PG&E and Silicon Valley Power offer companies design assistance for energy-efficient building, rate analysis, and energy audits to maximize efficiency. The California Energy Commission also offers many resources for energy efficiency. (See sidebar for a representative list of these and other online resources.)

Indirect costs affect businesses in other ways. Commercial airlines and shipping companies such as UPS and FedEx have implemented fuel surcharges to cover exorbitant fuel costs they have incurred, resulting in a reduction in business travel and increased shipping costs for goods and production materials. American Express Business Travel’s recent 2006 Global Business Travel Forecast shows that “growing demand and higher fuel costs will drive air ... rates higher next year, and the outlook for corporate travel buyers will be challenging.” Alternatives to business travel include teleconferencing and Web-based conferencing for meetings. Shipping costs may be unavoidable, but companies can consider restructuring their purchasing methods to consolidate supply orders.

Another area in which companies can save on fuel consumption is reevaluating their vehicle fleets and company cars. Alternative fuel vehicles are eligible for federal tax incentives, such as tax credits of up to 10 percent or $4,000 through 2006 for electric vehicles and up to $2,000 for hybrid gas-electric vehicles. Though California tax incentives have recently been suspended due to budget constraints, the long-term savings in fuel costs for employers will exceed the investment over the long run. The U.S. Department of Energy offers cost comparisons for the fuel efficiency of all vehicles on the market.

Companies may also have concerns about the costs their employees incur in commuting. In Silicon Valley, where the cost of living and high housing costs prohibit some workers from living nearby, workers may have to reassess their method of travel or their place of employment, which could cost companies their talent if viable solutions cannot be found. Some companies offer free commuter passes for public transportation and promote ridesharing, while others sanction telecommuting as a means to reduce commuting costs for employees and operations costs for themselves.

Sometimes implementing energy-efficient practices is simply a matter of raising awareness among staff, such as reducing the need for lighting in unoccupied rooms, turning computers and office equipment off when not in use, and avoiding the use of personal space-heaters and electric fans.

Intelligent conservation can be a team goal that generates enthusiasm, creative solutions, and cost-saving results. Given the realities of the oil supply situation, implementing energy efficiency practices for long-term planning may be one of the wisest and most simple of choices companies can make for ensuring their financial health and prosperity.