Saving money and the planet – what are we waiting for?

Listen to this: buildings account for more than a third of total energy consumption which causes CO2 emissions and costs money. If companies improve energy efficiency in buildings, we avoid much of the emissions – and companies save money! There, problem solved. Or maybe it is a little more complicated than that.

A couple of years ago, McKinsey & Co came out with a report stating that energy efficiency in buildings could be improved by 23 percent by 2020 at a positive net present value. Although the report also presented potential barriers to energy efficiency, the study has become popular evidence for how “stupid” real estate companies are not to undertake even the short-term profitable investments in energy efficiency, also referred to as ignoring the “low-hanging fruit”.

Swedish housing companies have shown varying approaches to energy efficiency when renovating the notoriously energy inefficient post war building stock, suggesting that their incentives for energy efficiency differ. The companies can be roughly divided into three levels of ambition. At the lowest level, the short-term profit maximizing companies see energy efficiency as an investment opportunity among others, which usually isn´t profitable enough to outdo other options. The “little extra” companies take some environmental responsibility and allow a longer payback on energy efficiency, hoping to get some goodwill for the effort. The few very ambitious companies are all public, driven either by policy directives or by enthusiasts in the administration, claiming energy efficiency will be profitable in the long run (unless they have other motives for undertaking such an ambitious approach, creating jobs for example).

Hence, some of the companies look almost only to the financials of an energy effiency investment whereas other companies take their responsibility and do “the right thing”. The emphasis they put on barriers vary accordingly. Energy efficiency improvements can be profitable as part of renovation, the Empire State Building being such an example. Adding a little extra to energy efficiency improvements may make sense economically when replacements are necessary anyway, and when there is a demand for the final product (it´s rather unlikely that failure to undertake energy efficiency measures would have left the ESB sitting vacant). However, it is deceiving to believe that the companies who do the major energy efficiency improvements do it because they alone have discovered how to make energy efficiency improvements pay for themselves. Where we are today, idealistic reasons are still a major driver and while some companies have managed to find a market niche, major market change require the financial incentives to be there as well. As a general business strategy, companies will continue to view energy efficiency as part of the overall investment decision, and as such it will not always triumph the competing alternatives. It looks like we will have to wait some more before strategies for saving money and saving the planet are perfectly aligned.

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