Daily Score Blog

This is a guest post by Kevin Wilhelm, the president of Innovative Strategies, a consulting firm that makes the business case for sustainability.

Many of us are familiar with utilities’ conservation programs – you know, the ones that offer a rebate to customers who buy a super-efficient washing machine or refrigerator. Right now, there’s a big political debate in Washington state, and even a ballot measure coming this fall, about whether the state should require utilities to make even greater investments in energy efficiency.

This has, somewhat understandably, caused some waves within the business community. The fear among many businesses is that a state mandate for utilities to increase energy efficiency programs could increase energy costs in the short-term. And that, in turn, could put the state’s businesses at a competitive disadvantage.

I believe that this fear – while understandable – is actually misguided.

First of all, energy efficiency is the absolute cheapest source of new power. The best available analysis finds that conservation costs about 2.4 cents per kilowatt-hour, which is a full cent cheaper than the next closest source – natural gas.

In other words, paying for efficiency saves about 30 percent, compared with paying for new power plants. So if you are pro-business, and care about power prices, then you should be for energy efficiency.

Second, WA State’s competitive advantage over the last 40 years afforded to it by low-cost energy is eroding.  And conservation offers our best shot at keeping that advantage from eroding even further.

This is huge. From the Wall Street Journal:

California, the nation's most populous state and a longtime bellwether on environmental policy, will impose the first broad cap in the U.S. on greenhouse-gas emissions, in a clear break with the federal government over global warming.

In essence, California is going to create the nation's first-ever carbon market, based on the same sort of cap-and-trade system that was so effective at reducing air pollution in the United States. 

In the short-to-medium term, this policy will leave California sitting pretty.  The smartest first steps for combatting global warming -- ramping up conservation and efficiency, eliminating various market failures in the utility industry, and perhaps shifting taxes off of workers and onto carbon emissions -- will all be good for just about everyone involved:  they'll allow consumers and businesses to lower their energy expenses or earn more money.  Plus, establishing a market for carbon reductions is likely to unleash all sorts of creative solutions, from practically every sector of the state's economy -- and for a high-tech state, the spin-off benefits could be huge.

Still, the state is taking a risk here.  Have no doubt, someday, some energy-intensive business will announce -- with hoopla and fanfare, though perhaps a bit disingenuously -- that it's leaving California for a place where carbon emissions have no consequences. There could be -- will be -- political backlash, and a move to weaken the carbon cap.

Which makes it all the more important for other states (paging Cascadia) to join in with California.  If everyone's playing by roughly the same rules, there's no "race to the bottom" -- no attempt by businesses to flee to the places with the lowest standards.  Expanding the carbon market beyond California's borders is the only sure way to lock in the state's gains.

Plus broader carbon market would also create more options for businesses trying to comply with the law. For example, an energy intensive California business that needed to offset its carbon emissions could find low-cost opportunities in, say, Oregon, or Washington, or Idaho.  And that could make carbon reductions into a profit center for an enterprising state.

Imagine that:  turning climate protection into a money-making venture. And as far as I'm concerned, there's nothing wrong with making money doing a good thing.

More (and smarter) on the subject here.