Friday, January 23, 2009

Obama's Energy Plan: Where Intention Meets Reality

Deploy Energy Efficiency.

There it is, a statement as declarative and straight forward as any of the other items in the Obama Administration’s energy plan. Thanks to Denis Du Bois, managing editor of Energy Priorities magazine for outlining the plan. Now hear this: my complaint is not with Mr. Du Bois, nor is it with the Obama Administration. And I am all for energy efficiency. I wince at the innocence implied by the word “deploy”—especially as it applies to the industrial sector.

Before I expand on that, let’s recap some facts: The industrial sector (meaning the facilities that manufacture the intermediate and final goods we buy or export) represents over 200,000 facilities and a solid one third of all U.S. energy consumption. It’s logical to have an industrial energy policy because any one facility’s energy consumption can equal that of hundreds, if not thousands, of homes. Up to 40 percent of U.S. industrial energy consumption goes to waste, although much of that can be economically recovered by implementing energy-efficient energy technologies, procedures, and behaviors.

Energy solutions exist. They are many in number, well proven, and often quite down-to-earth. Most involve little in the way of “rocket science” to deploy, at least on a technical level. See links to many of these resources on my website.

Here, now, is our impasse: energy solutions do not deploy themselves. How exactly will these efficiency solutions be implemented? Regulation? Imagine the receptiveness to a regulation that tells industry how and when to invest its capital and operate its facilities. Before asking anyone to make these investments, you have to decide exactly what processes, procedures, and applications within industry are to be targeted. The energy efficiency agenda collides with other asset management issues, raising complicated equity issues. A corporation can have a portfolio of facilities of varying ages and design. Do you “deploy” as much energy efficiency in a plant that is months away from closing or divestiture as you do in a new or expanding plant? What if potential efficiency measures occur far more often in one type of industry or process than in another? If the government provides help in the form of tax breaks, incentives, or grants, then certain industries or processes achieve windfalls. Through no one’s fault in particular, certain industries can receive a disproportionate share of energy tax breaks, incentives or grants. If your company collects a bunch of incentives, then so much more of your existing cash flow and investment capital are free to go into other non-energy pursuits.

Then we have turf issues within industrial organization. The culprit here is organizational complexity—the typical industrial facility is really a loose confederation of departments that compete with each other for scarce budget dollars. Production targets—and not energy efficiency—rule the day. While the organization as a whole will benefit from energy efficiency (i.e., save money, reduce emissions liabilities, and often improve product quality and productivity), there are barriers to action when the costs and benefits of energy improvements are not clearly assigned across departments. Industrial energy performance reflects the collective decisions of many departments; responsibility for energy solutions is similarly dispersed. This is an organizational issue that must be understood and addressed internally. Lawmakers are powerless to overcome proprietary issues like these. Grants, tax incentives, and all other forms of government intervention, no matter how well intended, will not move the needle on industrial energy efficiency—unless organizations untangle their own internal barriers to action.

The organizational change that is required to “deploy energy efficiency” begs an analogy to the life-style changes that individuals make to stay healthy. There is no plug-and-play solution. Quitting cigarettes by itself is not enough. Changes in diet, sleeping patterns, and exercise are more effective when done collectively rather than exclusively. However challenging, these cumulative life-style changes make a big difference to an individual. Imagine trying to make decisions of that nature by committee, and you begin to understand why industrial organizations find it difficult to pursue energy efficiency.

The Obama Administration is not alone in its attempt to deploy energy efficiency. Many states and utilities, individually and sometimes collectively, establish programs to address industrial energy waste. In every case, the leaders of these efforts are scratching their heads over the approach to this task. Rest assured that the solution is not (solely) the stroke of a lawmaker’s pen. Energy efficiency is deployed when companies make the proprietary decision to dismantle the organizational barriers to capturing the value in the energy that they already use.



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