On Monday July 26^th the Democrat’s climate change legislation was pulled from the senate in an attempt to spare the embarrassment of a fourth cap and trade bill failing to pass. With the entire Republican Party in opposition of the legislation and wavering support from fellow democrats the bill lacked ample support to enact significant government mandated environmental policies. 

The main point of contention in the legislation was one of President Obama’s major campaigning points, the introduction of a cap and trade policy on carbon emissions in the United States. The cap and trade policy is a market-based approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants. By setting a cap on the amount of emissions a firm can emit they are forced to either reduce their carbon emissions or be forced to pay for the market cost of their emissions. On the flip side those companies who are able to reduce their emissions receive monetary incentives through the market by selling their carbon offset. 

But even with this setback the Democrats still plan to push a more limited climate change bill through that includes the reform of offshore drilling, additional alternative energy incentives, and remedies for the conservation of energy and water. 

The offshore oil reform, heavily influenced by the recent BP oil spill in the Gulf, will focus on the accountability and liability cap for companies. The liability cap for companies is suggested to be raised from its current $75 million to $10 billion, to ensure that companies are more accountable for their offshore drilling sites. Additionally with the suggested raised cap it ensures that companies will be fully liable to cover damages in the event of an environmental disaster. 

As for alternative energy incentives in the new proposed legislation the major push is on the auto and housing industries. The legislation outlines incentives for the auto industry to begin converting trucks to run on natural gas and for cars to run on electricity. For the housing industry the bill includes the energy efficient measure “Home Star” endorsement, incentivizing small fixes around the house such as plugging window leaks, and proper insulation of the home. 

On the whole, while the main focus of the climate change bill was its downfall, the revised bill is looking to be pushed through within the next few weeks. With this we can expect to see the gradual steps towards a more environmental conscience America fuelled by alternative energies. 

With a number of carbon use centric statutory and regulatory actions taking shape across North America, such as US American Clean Energy Act, Western Climate Initiative and sustainability reporting requirements from the Ontario Securities Commission, carbon use transparency will have an increased level of business impact on many organizations.

It’s crucial for organizations to start reporting its carbon use data today. Waiting for carbon regulations to arrive before preparing is too late.

Below is a short presentation on how organizations can prepare themselves for the new world of public carbon use disclosure and transparency. This presentation outlines suggested steps to take and the important role the Chief Financial Officer will play in leading organizations in overall preparation.

To view this presentation in PDF format click here.

This saying still holds in the rapidly developing discipline of total energy and environmental management. Many organizations are now struggling to elevate the procurement and utilization of energy to an enterprise level as a response to drivers such as volatile energy prices, emerging supply technologies, and greenhouse gas emissions regulatory and reporting requirements.

Energy data and information systems and processes are an important foundation for successful energy management planning, implementation and continual improvement. These systems are also consistent with continuous improvement approaches applied to other corporate priorities such as financial or inventory controls.

The collection and validation of data and information required for an effective energy management program can be a complex task which will only increase as energy end users face an increasing amount of energy-related data and information inputs.

Organizations that do not adequately arm themselves with the data and information related to their energy use will not be able to track progress towards their goals and will end up working in an environment that lacks the transparency and accountability required to achieve success.

But measuring alone will not achieve and maintain the results that are possible with a good energy management strategy and implementation. Energy-related information quickly loses its value in the absence of aligned management and administrative structures, designed to continually work towards energy management goals.

Why is energy management becoming an enterprise-level challenge? Why is it moving from a “technical” activity assigned to operational staff and moving firmly on to the agenda of CEO’s and CFO’s? There are a number of critical elements that make up a total energy and environmental management approach. The success in addressing each and every one of these elements relies on well-structured and maintained energy data and information systems and procedures.

Corporate Energy Committee
In the same vein as well-known enterprise level corporate committees, the establishment of a corporate energy committee is an important foundation for an optimal energy and environmental program. The committee can also be the place where high-level, energy and environmentally related corporate concerns can be addressed, such as risk, image and compliance.

Energy is becoming a larger part of overall risk assessments because of price volatility, supply security and government compliance. The days of ‘greenwashing’ are over as consumers will demand detailed facts and figures and possibly third party verification and accreditation in support of such claims. Governments are getting serious about energy efficiency and greenhouse gas emission reductions, regulatory acts such as Ontario’s Energy Efficiency Leadership Act within Bill 21 and the United States Waxman-Markey Bill. All of these aspects demand significant data collection and manipulation and enterprise level decision-making.

Energy and Environmental Policy
Organizations are often highly motivated to adopt energy efficiency and other green policies and promote them to the public. But in the absence of good data and information systems and organizational structures it is very difficult to assess the costs of implementing and maintaining these policies, thus undermining their effectiveness.

Energy and Emissions Baseline
An energy and emissions baseline report provides an overview of an organization’s energy consumption, costs and emissions for a recent fiscal period and becomes a critical benchmark against which the success of future energy and environmental policy and programs can be measured. The baseline is entirely dependant on data and information related facilities energy use, energy supplier information, water and treatment usage and relevant facility metrics which affect energy consumption and cost such as production data, hours of operation, facility area etc.

Opportunities Assessment
A review of every facet of an organizations energy related operations addresses the gap between existing and best management practices. This includes financial, accounting, procurement operations, design, construction and environmental functions. In combination with the baseline report data and information, the opportunity assessment is used identify opportunities for energy efficiency and environmental improvement as well as the potential costs and benefits.

Strategic Plan
The strategic plan sets out the corporate energy management objectives. It addresses the importance and impact of energy management on the company’s profitability, sustainability and, ultimately, its value. The plan outlines the framework in terms approach, resources, and timeline for implementation. Based on these strategic considerations, more detailed action plans can be developed for each area as described below.

Budget and incentives required to resource energy efficiency and environmental programs are reliant on high quality data and information systems. The budget is typically based on historical consumption and cost data from the baseline report. Access to government programs typically requires detailed analysis of expected results and reporting on the performance post-implementation.

Energy and emissions monitoring and reporting requires relevant data to be captured continuously monitored over time so that periodic reports can be prepared to show how the company is progressing towards its stated objectives and targets, and versus budget.

Diligent energy procurement requires reliable data and information in support of monitoring developments in energy procurement markets, assessing direct purchasing strategies, and implementation and management of direct purchases.

Energy efficiency for existing facilities is a fundamental goal of total energy management. This typically involves employee awareness programs and capital expenditures to improve energy-using equipment and systems. Both approaches rely on well structured data systems to assess feasibility, prioritization, calculate paybacks and reporting on expected results.

Emissions and carbon offsets trading is a critical components of future carbon management mechanisms. If a cap and trade mechanism is put in place, organizations will be hampered if they have not established rigorous energy and emissions accounting systems.

Conclusion
All of the issues listed above, when considered as a whole, are critical management issues that cannot be properly addressed without the appropriate measurement tools and management processes.

“You can’t manage what you don’t measure” is much more than an overused cliché. Organizations that don’t embrace the challenge run the risk of being left behind in the emerging green economy.

A frequent question constantly arises around the accuracy of energy data estimations and the quality, in terms of size and completeness, of the data set that is used to create an energy baseline. For those of you who don’t know what an energy baseline is, it is a detailed summary of your energy cost and consumption data for at least twelve months. By creating an energy baseline you’re establishing an important benchmark for your organization to measure future energy and environmental initiatives to.

As important as it is to have data for at least twelve months, it is also important for this data to be for consecutive months. Although there are several mechanisms to estimate future energy consumption, starting from a baseline period, having only a partial data set will have an impact on the accuracy of future projections and data analysis.

Every month of energy data, for a specific baseline period, brings with it an array of factors that influenced its results, such as:

• Weather (i.e. requiring higher/lower cooling and or heating);
• Specific operational behaviour (i.e. peak distribution months for a company requiring their warehouse doors to remain open more hours every day); and
• Higher external lighting consumption during winter months vs. summer months.

Therefore, although missing energy data for specific months within a baseline period can be estimated, the accuracy of estimations would be lower as these specific factors would be missing.

The following graph shows a clear example of the relationship between completeness of energy data and the accuracy of its analysis and projections.

Figure 1 – Quality of Data Set & Accuracy of Analysis

The closer a baseline period gets to being fully complete (i.e. 90% to 95% or 11 out 12 months) the more accurate the analysis and projections will be.

Two main components of energy analysis are cost and consumption. Most organizations keep track of their energy cost only (through their Finance and Accounting department) leaving out the other half of the equation -Consumption. Utility invoices are not only the result of rate and consumption; there are several other charges and adjustments included in it, which should also be taken in consideration. This only clarifies the need for both sides of the equation.

In summary, when it comes down to energy management, the size and completeness of your energy data is a key factor for data transparency, accurate analysis and a benchmark for future energy initiatives.

Canadian Financial Executive Research Foundation (CFERF) and Energy Advantage have partnered on a research study to examine the strategic issues faced by Canadian organizations emerging from the various North American carbon management regulatory activities underway today. This study is based on gaining feedback from Chief Financial Officers across a wide spectrum of Canadian organizations on the issues they face, and the responding actions their organizations are taking in the management and reporting of carbon use.

Gathering on January 22nd, 2010 in Toronto for an executive research forum, CFERF and Energy Advantage joined with Chief Financial Officers from 16 of Canada’s leading organizations to explore their views on carbon management issues and what actions their organizations have taken (if any) to address them . The result of this insight will be incorporated with the results of a wider survey to form the basis of the research findings.

These opening remarks from Shane Pepin, Executive Director, Sustainability Solutions of Energy Advantage kicked off a vibrant morning session of discussions around carbon management and the critical role that Chief Financial Officers play given their holistic operational perspective.

Following a round table format, the forum focused on four major areas – governance, compliance and reporting, management practices, and business performance measurement. Below summarizes popular themes discussed at the forum.

Governance
Opening with discussions around the current and evolving regulatory environment, we explored the awareness level and respective views on how emerging regulations, such as, Waxman-Markey/American Clean Energy and Security Act, British Columbia Carbon Tax, Ontario Bill, OSC disclosure, Federal Government’s ‘Turning the Corner’ plan, Alberta Carbon Market, Western Climate Initiative, Carbon Disclosure Project, are affecting organizations.

The role of the stakeholder community (investors, regulators, customers, suppliers, employees, shareholders, non-governmental organizations) in carbon planning activities was discussed including the degree of executive and/or board involvement and their prevailing influence. Reporting process, priorities and transparency were included.

Compliance and Reporting
This topic began with a discussion on carbon management compliance and reporting actions being taken by the representative organizations, both voluntary and/or mandated, to gain an understanding of the various approaches and channels being used today. A key area of discussion focused on if and how organizations are planning to integrate carbon reporting into their corporate information infrastructures.

Carbon related competitive, reputational, financial, legal, stakeholder and supplier risks were all discussed with respect to an organization’s overall business strategy. As well, multiple opportunities were offered around carbon management, including capital related activities both from an investor perspective and new revenue streams (selling carbon credits), the benefits of an enhanced reputation, increased market share, etc.

Management Practices
This topic focused on gaining an understanding of specific actions organizations have taken as a result of executive and/or board involvement (if any) on carbon management, such as, accountability, performance tracking, goals and objectives, and key performance indicators. A key focal point of the discussion was related to the role of the Chief Financial Officer in carbon management activities and whether it should be a supportive or leadership position.

Additionally, greenhouse gas emissions reporting targets were discussed in reference to their role in corporate, departmental and individual performance measurements.

Business Performance Measurement
Focusing on the impact that greenhouse gas emissions performance levels have on an organizations overall business valuation, this section discussed diverse strategies (if any) organizations have made to incorporate carbon management into the valuation of their business. Related discussion occurred on how capital markets and/or institutional investors may take into account carbon management factors in their business valuations.

In addition to the executive research forum, a research survey, distributed to Financial Executive International’s 10,000 members, will be conducted and be accompanied by a final report that will highlight insight from both the survey and forum results.

As we conclude the research, Energy Advantage and CFERF will broadly publish the final report on holistic carbon management and present the results to various Financial Executive International chapters across Canada and at the Financial Executive International June, 2010 annual conference in Victoria, British Columbia.

If you are reading this article and your business card says energy manager, chances are you already have some level of corporate commitment, as discussed in the last article. The tendency of many newly appointed energy managers is to rush out and get some quick hits – put up some awareness posters, install some compact fluorescents, retrofit some low flow nozzles.  These are good measures but not the best place to start. You need a plan. Why? Because: “If you don’t know where you are going, you’ll end up someplace else,” as Yogi Berra once said. To make matters worse, when you get there, no one will know you are there.

The process of developing a good strategic plan is as important as the plan itself. The process needs to be inclusive and collaborative. At the end of the day you want a plan that everyone has bought into. Energy impacts a number of key functions within a company.

The chance for success increases with a good management team that includes: an executive sponsor from senior management to provide leadership and set direction; a finance person to ensure the most appropriate purchasing decision are made; an operations/production person, as the end user, to ensure that measures are implemented effectively;’ and human resources to facilitate training and help generate a culture of energy awareness.

When developing a sustainable energy program, I like to use the following steps:

• Baseline Analysis;
• Best Practices Assessment;
• Design Review;
• Energy Studies; and
• Opportunity Assessment

The baseline analysis establishes the starting point of your energy management program. Like starting a new business, it’s essential to have an opening inventory, which is the basis upon which the success of the program will be measured. The most reliable source of information is the actual utility invoices. These provide cost and consumption as well as rate information and other usage statistics such as power factor and time of use.

The process of compiling this information can uncover many opportunities.  Why do we have so many accounts? Why are the rates different between two similar buildings in the same city? Further analysis can be determined on how energy use is affected by weather, occupancy, production or retail transactions. Benchmarking energy intensity will tell you how you stack up against your sector and provide an indication of the range of target you could be setting. The baseline also lays the foundation for an energy tracking system. The system should be centralized and available for all to use in gauging progress toward established targets, milestones, and deadlines.

In addition to quantifying energy usage, another important step is to complete an initial assessment of best practices within the company. The purpose of this exercise is to identify and address gaps in current management practices (e.g. procurement policies, operating procedures, maintenance practices, financial criteria, training programs, and energy reporting use).

Through one-on-one interview or group workshops it is possible to engage senior managers to talk about energy and, in the process, improve their understanding of how energy relates to their critical business drivers. The results can be used to benchmark energy management practices against others in your sector to measure improved performance in subsequent years.

If your company is constantly building new facilities, a design review using energy simulations is a useful tool to identify energy savings opportunities. Energy modeling enable designers and engineers to investigate alternative energy efficiency measures before the design is completed and construction starts.

Results can be used as a basis for design specifications of new construction ensuring that the company’s new facilities will be energy efficient in the future. In addition the resulting model can be used to establish benchmarks to compare against existing facilities and assess retrofit operations at these facilities.

Knowing your organization’s baseline energy use and the relative performance of your entire portfolio is only part of the information needed. Assessing the performance of equipment, processes, and systems will help you identify further opportunities for improvement.

A scoping audit is the simplest and quickest way to become familiar with a building’s operations and identify obvious opportunities for energy savings measures. Typically, only major opportunities will be uncovered during this type of audit. The level of detail, while not sufficient for reaching a final decision on implementing proposed measures, is adequate to prioritize energy efficiency projects for strategic planning and determining the need for more detailed audits.

Opportunities identified in the initial assessment, baseline, scoping audits and design review should be compiled into a master opportunity list. The opportunities can be organized into three types – operational, retrofit and capital intensive. Estimates of energy reductions, cost savings, implemented costs and emission reductions should be included for each measure. At this stage, the intent is to include all the indentified measures for discussion purposes. This list can then be reviewed with an internal energy committee to discuss the feasibility of inclusion in the energy management program.

Once the potential for improve has been estimated, goals can be established at the appropriate organizational level. Energy performance goals should be formally established and recognized by senior management. These goals and targets form the basis of a complete sustainable energy action plan, which should be endorsed by senior management. This action plan should identify the different steps required to achieve the goals and targets outlined, the resources required for success and at timeline for completion. Approval of the plan establishes the program as a mission for the whole organization.

Now that you have a plan outlined, as Yoda said, “Do, or do not. There is no try.” Next article I will talk about financing the energy program.

Energy Exchange will deliver you meaningful and relevant content surrounding a myriad of topics related to sustainable energy. Energy Exchange will strive to provide topical information that will help you make informed decisions when it comes to energy management practices.

Energy Advantage is a total energy management organization with a depth of expertise in the energy and environmental area. We look to deliver tangible results in terms of reduced risks, costs and environmental impacts to organizations across North America. We want to help you stay informed on emerging issues, provide best practices in energy management and offer opinions and advice on effective energy solutions. Look for articles that surround topics such as energy procurement, energy reporting, environment management, energy efficiency and sustainable energy management.

So why read Energy Exchange? With over 12 years of experience in the energy and environmental industry we have a lot of extensive knowledge that we would like to share. We strongly believe in continuous learning and want to help you stay informed and educated by sharing our expertise on emerging trends, developments and best practices.

Energy Exchange articles will be written by internal energy and environmental experts and marketing professionals. We will be posting twice a week, so keep an eye out for new content! You can also subscribe to our RRS feed to receive updates of Energy Exchange.

We are really excited to launch a series of energy management articles by Peter Rowles. Peter is an engineer and energy expert with over 20 years of experience in the energy industry. The series will address how to successfully drive a sustainable energy management program within an organization. Articles will focus on program development, energy savings initiatives and making the program operational.  Topics include:

• Corporate commitment;
• Strategic planning;
• Government and utility incentives;
• Energy awareness programs;
• Monitoring and tracking; and
• Emission credit creation.

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Thank you for visiting Energy Exchange. We hope you enjoy and value our expertise.

Sincerely,

Experts at Energy Advantage