Don't let outside pressures distract from risks

Energy Expert Peter Garforth says that political and economic pressures distract us from risks.

By Peter Garforth

This week, I had the privilege to speak on global energy markets and their impacts on business at the Energy and Power Distribution Conference organized by Schneider Electric. The attendees were industrial energy managers, many clearly struggling to keep management focused on energy productivity and greenhouse gas reductions in the face of very challenging economic and market circumstances. This led me to reflect on the career risks that might be faced by many energy managers as their leadership focuses on immediate challenges of the economy, sidelining energy-related risks.

This is potentially a no-win situation for the energy manager.

– Peter Garforth

With every day that passes, the range and degree of uncertainty associated with energy grows. The conventional wisdom in the recent past has been that energy prices will inexorably rise along with high levels of volatility. Recent natural gas finds in the United States and Asia challenge this, potentially undermining some of the economic basis for efficiency. The assumption that the United States was the “Saudi Arabia of coal” is being questioned as reserves are reassessed not only for their availability, but also their cost of extraction.

The other conventional wisdom, that the rapid growth of China and India would inexorably strain the world’s energy supplies, also is being scrutinized. It’s being tempered not only by these new supplies coming on-stream in the next decades, but by the economic slowdown and the growing view that large-scale efficiency and clean energy sources may be more readily deployed than once assumed.

Potential legislation to cut greenhouse gases will have huge impacts on the relative economics of natural gas, coal, nuclear and renewable energy, and of efficiency as the obvious first step. In this same week, the Kerry-Boxer proposal to reduce greenhouse gas emissions was presented to the U.S. Senate. This follows the passage of the Waxman-Markey Cap-and-Trade by the House. Both aim at emissions reductions of as much as 80% but are different in their approach. Strong lobbies are lined up both for and against these and other proposals. In parallel, the U.S. Environmental Protection Agency is charged to develop a regulatory framework for greenhouse gases.

China appears to be moving to some form of obligatory greenhouse gas emissions commitments; a major shift. This could lead the United States to accept internationally agreed limits. With or without China, major U.S. corporations are asking Congress for climate legislation so they can manage their businesses with some degree of predictability on this topic. Some are even leaving the U.S. Chamber of Commerce in protest against the chamber’s policy on climate change.

These are massive uncertainties around energy availability, supply reliability and basic prices. Add to that the unknown costs or opportunities presented by greenhouse gas legislation and the picture looks interesting, to say the least.

So, how does all this big-picture uncertainty present career risks to today’s energy managers? From my conversations with most, I still get the impression that their companies are looking at energy efficiency much as in the past. Investments only are approved for projects with one or two year paybacks based on current energy pricing. Even these are at risk as seemingly more immediate priorities crop up. It also seems apparent that programs to specifically reduce direct or indirect greenhouse gas emissions are rarely supported unless they can be justified based on today’s energy cost savings. The current lack of carbon pricing too often justifies these delays.

In short, for most energy managers, not a whole lot has changed. Most that I speak to are well aware of the future risks and the need for comprehensive long-term risk management strategies. However, they are too often discouraged by what seems to be an unchanging view of management that energy efficiency is “optional” and greenhouse gas risks will be dealt with when the future is more certain.

This is potentially a no-win situation for the energy manager. If he or she fails to communicate to leadership that future risks are more complex and potentially game-changing, necessary long-term energy and climate management strategies will not be implemented. If one of these game changers plays out, the immediate question will be why the energy manager failed to anticipate it and have effective programs in place.

The future will belong to energy managers who can effectively and persistently communicate the financial, environmental, and supply reliability risks and opportunities in easily understood terms for non-experts. These will ultimately be supported and have a bright future. Those who fail to do this and hunker down under the immediate pressures from their management may ultimately find themselves having to answer management’s questions as to why they were not warned. They may find this failure to communicate puts their personal future at risk.

Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at garforthp@cs.com.

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