Energy Sustainability - Economic Millstone or the Key to Competitiveness?

	BY PETER GARFORTH, P.E. Senior Consultant Energy Productivity Solutions

Canada’s ratification of the Kyoto Protocol and the current level of energy prices in North America bring to the fore the question of the sustainability of energy use, and the associated environmental and economic impacts. Too often this debate lapses into a black-and-white, pro-and-anti discussion.

The “pro” camp defaults to the global climate change disaster scenarios and takes a stand that we must do it, whatever the cost. The “anti” camp throws doubt on whether outcomes of the status quo are really that bad, and anyway, fixing it would cost too much and be bad for business.

This is a no-win conversation for a responsible engineer obliged to serve the business and social needs of his clients at acceptable cost, while doing as little damage as possible to the environment.

Evidence suggests that there is another, far more satisfying place to stand. The challenges to reduce energy intensity by factors of two or more appear to be creating more, not less, innovation and market opportunities.

The Cost of Not Responding

The corollary appears to be coming true. Failing to respond to these challenges is hindering the ability of companies and communities to innovate, and ultimately compete, globally. When the history of energy of North America is written 50 years from now, Canada’s decision to commit to the challenges of Kyoto may be seen as an inspired decision to enhance its global competitive stance, and less as doing the right thing environmentally.

Sometimes in this life, what is good for us is not always apparent! The professional engineer has a significant responsibility to understand the impacts of developing sustainable solutions, such that they can better serve their customers and societies.

The word “sustainability” is much misused. All too often it’s used to refer to anything from important but relatively minor environmental improvements to fully self-supporting ecosystems. Strictly, a sustainable system is one that creates more resources than it uses. A sustainable energy building, for example, in effect becomes a power plant in its own right.

At a minimum, a strategy should be aimed at least at halving the energy use compared to today’s norm before it can be said to be a significant contributor to sustainability, as distinct from enhanced performance.

Energy Use Increases

A quick look at the energy big-picture is good place to start. Twenty per cent of the world’s population uses about two-thirds of all energy. The energy demands of the remaining 80 per cent are accelerating rapidly in India, China and other countries.

The hope that the developed world’s energy use would flatten off and that the developing world’s needs would grow relatively slowly is not proving to be the case. In addition, after more than 10 years of scientific and political debate, there is finally consensus that the climate is undesirably affected by the greenhouses gases coming from human activity, mostly from energy systems.

From the mandatory demands of Kyoto to the voluntary approach adopted by the United States, a range of voluntary and mandatory measures is being put in place globally to reduce energy intensity. Whatever our personal beliefs, these measures are having massive impacts on markets worldwide.

Improving energy productivity is too often discussed as an environmental and not an economic question. Worldwide, energy in all forms has a total cost of $3.5 trillion US. What is easy to forget is that less than 20 per cent of the energetic value of the original fuel finds it way into the final product or service – suggesting that there is $2 trillion in productivity available!

Even within the developed world, energy use differs greatly. Canada has an energy intensity about 40 per cent higher than that of the U.S., which in turn has an energy intensity about twice that of the European Union.

Price Gap Closes

The rationalization for this difference is often the supposed relatively lower energy cost in North America. This may have been true in the past, but today gas and electricity prices in parts of North America are equal or even higher than in some parts of Europe. Amazingly, many political and business leaders still believe that American energy is significantly cheaper.

The prognosis on energy prices is that those in the U.S. will probably increase, in Europe they will stabilize or even reduce, and in Canada they could go either way, depending on policy. Even if Canadian prices go down, it still makes better economic sense to export it to the U.S., rather than waste it at home.

As an example, let’s look at a single area of the market: residential, commercial and industrial buildings. Here, we begin to get a sense of the competitive impact of energy use. On a normalized basis, the energy use in buildings constructed to pretty widely used standards in Germany, Scandinavia, Austria and elsewhere, is about one third the level of the best practice in the U.S. and Canada. The difference is even higher when the average new construction in both markets is compared.

The meaning of these differences comes into sharp focus when a real example is evaluated. The recently constructed headquarters of a major corporation in the Midwest of the U.S. had been built to standards that exceed local codes in terms of energy efficiency. This good quality building has current annual energy costs of about $1 million US.

If design approaches, construction techniques and energy supply had been used that would be readily available in a German or Scandinavian city, the running costs could drop to as low as $200,000 US.

“ When the history of energy of North America is written 50 years from now, Canada’s decision to commit to the challenges of Kyoto may be seen as an inspired decision to enhance its global competitive stance, and less as doing the right thing environmentally.”

What About Construction Costs?

Contrary to popular belief, this would be with relatively little increase in the initial construction cost. There is increasing evidence that the initial costs of high-performance buildings may be the same or even cheaper than conventional construction, once the supply chain has reorganized around a new market reality.

The cost savings for the operator in this example are a fairly obvious dimension of competitiveness. More subtle is the impact that different building approaches can have on the competitiveness of the construction industry. The data are not conclusive but strong indicators exist.

The European architectural, engineering and construction industries are exporting proportionally more than their North American competitors and the gaps seem to be widening. Even more telling is that countries such as China are increasingly adopting global best practice as the basis for their building codes, further enhancing the competitive edge of the companies that can meet those standards as a matter of course.

Comfortable Working Environments

I have a last, very personal point on the competitiveness of high performance buildings. Having worked in one for four years (the headquarters of Landis & Gyr in Zug, Switzerland), I can personally attest to the comfort and productivity of such a building. Low energy use does not mean low comfort or low productivity. The data point the other way.

There is not enough space to delve into other industry areas where the markets with the highest environmental standards are spawning innovation and competitiveness. Automotive, power, and energy supply systems, chemicals, pharmaceuticals and, civil aviation are among a selection where this case can be made. It appears we could be looking at a general market reality.

When a local market demands products with radically different environmental performance, this appears to ultimately raise the global competitiveness of the companies that learn to serve that local market. This is the ultimate win-win situation. Radically improved environmental performance, lower operating costs, higher user satisfaction, and improved competitiveness.

So how do you feel now about the signing of Kyoto?

Peter Garforth, P.E., is a Toledo, Ohio, consultant who spoke in April at the Sustainable Building Symposium in Edmonton and Calgary. His company, Energy Productivity Solutions, assists companies and policy-makers around the world in the development of effective and competitive approaches to reducing the economic and environmental impact of energy use. The company has offices in Toledo and Brussels. Until recently, Mr. Garforth was vice-president of strategy and business development for Owens Corning. The opinions expressed are his own and not necessarily those of APEGGA.