Navigant Research Blog

When Energy Efficiency Equals Economic Development

— March 13, 2012

The cost of economic development in China – both in monetary terms and in externalities – is unparalleled.  The housing sector demonstrates not only the vast infrastructure development the Chinese government is driving, but also the human and environmental costs associated with the scale of development.  At the same time, the Chinese government is entertaining pragmatic reforms that could open the market for energy-efficient housing across China.

The Chinese real estate industry is anticipated to continue new construction at a rate of nearly 1 billion square feet every year until 2020, according to the Pike Research Global Building Stock Database.  The land for such infrastructure is the primary source of revenue for local governments, generated through one-time sales to property developers.  As a result, local governments have been transferring land at unimaginable rates to generate operating revenues, while burgeoning urban areas are left with a glut of energy-intense housing stock, constructed on the cheap.

The impacts on the Chinese housing market – which has been booming since reforms in the 1990s permitted private homeownership – are well known; most analysts are holding their breath for the housing bubble in China to burst.  The solution to the ills of the housing industry in China might just be energy efficiency, of a sort.

The Chinese government has been trialing energy and environmental tariffs, designed to raise the cost of carbon-intense commodities to encourage energy efficiency, in parts of the country.  The measures may be nationalized in the future.  These taxes could provide relief to both the housing market and ameliorate the negative externalities imposed on Chinese citizens and the environment by overheated development.  Such a policy addresses what may be the root cause of the housing bubble: local governments could rely on taxes for operating revenues, rather than continuing one-time sales of land that encourage accelerated construction of sub-par housing.

So while Western countries like the United States are still debating whether energy efficiency mandates constitute “over-regulation,” the Chinese government is seriously pursuing policies to encourage energy efficiency – not because it’s good for the environment, but because it’s good economic policy.


Pentagon Looks for Energy Savings

— February 13, 2012

In these times of tightening budgets and linger economic uncertainty, the energy savings performance contract model appears to be enjoying growing popularity.  In our most recent analysis of the ESCO market in the United States, one of the most interesting dynamics in the market is the federal sector’s growing appetite for third-party financing.  This is a new course for the U.S. government and for the Department of Defense in particular, which has not favored the ESPC model historically.  It now appears the Pentagon, which spends roughly $4 billion annually on energy, is reviewing a broad menu of tools and resources that will ensure compliance with energy-saving mandates.

Third-party financing, accessed through guaranteed savings contracts, presents a unique opportunity for the DoD to reach energy savings targets in its portfolio of buildings, despite declining Congressional appropriations.  In these budgetary conditions the approach calls for low-cost, scalable tools that will assess initial energy performance and identify opportunities for improvement, and provide on-going feedback, without requiring an onsite energy auditor.  Such a tool exists: FirstFuels’s Rapid Building Assessment, which my colleague Eric Bloom wrote about last September.  It appears FirstFuels’s RBA, like the ESPC model, is seeing growing adoption in the federal sector.

Rapid Building Assessment was one of 27 proposals selected by the Department of Defense’s Environmental Security Technology Certification Program (ESTCP) to demonstrate how energy technologies can save the military dollars and kilowatt-hours.  The “zero-touch” software aims to assess energy performance across the DoD’s more than 300,000 buildings using algorithms applied to consumption data to deliver actionable intelligence on building energy performance.  At roughly $2,000 per building, RBA can track down energy savings opportunities without human interference, cutting costs from the start.  And with the help of the widely used International Performance Measurement and Verification Protocol (IPMVP), RBA can provide feedback on actual savings.  Measurement and verification is a requirement for Federal sector energy savings projects.

The energy consumption profile of the Department of Defense is unique, given its particular operational requirements, which can mean big costs even just to assess energy savings opportunities.  Given the time and monetary constraints the DoD faces in implementing energy efficiency measures, the selection of FirstFuel’s RBA could be the solution to getting out from between that rock and hard place.


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