Do lower energy and fuel prices make you use more of the commodities concerned? What behaviours are likely to result and what will help remedy the situation? How does regulation like ESOS factor into this?
Some lessons from transport
I’ve returned to the UK from the US West Coast and Canada having observed the impact of lower fuel prices on traffic volumes. The gridlock situations around Seattle can be blamed on a range of issues, most frustrating of which as always are roadworks, but it is also the significant drop in gasoline prices.
People are simply using their vehicles more. The issue is similar, though not as bad, in cities like Vancouver which has an excellent public network of buses, monorail and encourages lower carbon fuels and electric vehicles.
Technologies have been improving at a substantial rate improving mpg figures for petrol and diesel vehicles and making electric vehicles far more attractive. This has happened through competition, regulation, subsidies, etc.
Secondly, there has been a fresh approach to vehicle taxation which has made efficient vehicles even more cost effective to run.
Thirdly, the technology which drives greater efficiency is also coming down in cost.
In terms of behavior, driving more is undoubtedly linked to price as may be styles of driving (speed, braking, etc), the hardest part, especially in places like the US, is persuading people that it’s better for everyone if they travel by public transport.
Overall, this has surely led to major reductions in cost per mile driven and also a much lower carbon footprint.
It’s therefore a shame that many companies see transport as a “de minimus” activity rather than one to challenge still further. But let’s move on…
Energy efficiency in buildings
Persuading Boards of Directors to accept business cases showing massive cost savings is never going to be as difficult as when those savings are much lower and the returns on investment don’t compare well to alternatives.
So when there are significant drops in underlying fuel prices, even though this may be a temporary situation, this difficulty certainly becomes the cases.
The behavior of organisations in this situation naturally changes towards lower levels of interest and commitment to invest and look to the longer term.
The fundamentals of supply and demand will naturally lead to lower rates of improvement in energy efficiency in buildings and other activities such as manufacturing/processing.
Changing the balance?
This is a situation where regulation potentially has a serious role to play, as with transport and as an alternative to artificially fixing energy prices at a high enough level to make investment worthwhile.
Through improvements in the Building Regulations there has been substantial progress in raising efficiency levels in buildings, much as there has been over recent years for road vehicles.
Still the problems are to convince Boards that improving existing, rather than just new-build, stock are surely the priority – and potential improvements are substantial.
Where ESOS has a powerful role to play is in providing tools other than purely the financial to convince the C-level that additional efficiency is worthwhile.
Maybe not always the obvious…
> Reduced need for energy generation and distribution infrastructure leading to
> Reduced pass-through costs (against what they would otherwise have been)
> Balancing reputational value of improvements to gain extra customer business
> Supporting cultural change on efficiency throughout the business
> Lengthening horizons (which are often very short)
> Identifying potential improvements other than pure energy savings opportunities
> And maybe long-term demand reduction globally will help keep prices at a lower level than they’d otherwise rise to
Given that ESOS is a mandatory scheme in providing visibility of the opportunities, has costs attached which need to be recovered and can even be a factor in business competitiveness why would a business choose to ignore it? Aside of the financial penalties which many get excited about it really makes good business sense to extract maximum benefit (and be seen to do so).
Time is running out for some to change the balance… As a customer, would you like to deal with a business which ignores potential efficiency improvement? Or maybe find an alternative which takes it seriously.
Mervyn Bowden is the Managing Director of Intuitive Energy Solutions Ltd.