Energy Management

Decarbonizing the energy economy

Peter Garforth says cities and companies that are positioned to fill policy gaps will capture growth opportunities.

By Peter Garforth

This column is the second part of a discussion about the balance between energy and climate policy and competitiveness. My previous column (Sept. 2017) looked at some of the effects of long-term ambiguity surrounding the goals of U.S. energy and climate policy on the overall competitiveness of the United States. Given that U.S. federal and state policy ambiguity is likely to continue for the foreseeable future, what should businesses and communities do to maximize their opportunities around this topic?

Cities are increasingly filling the policy gap. In the past few months, more than 390 cities have committed their jurisdictions to meet the emissions reductions targets of the Paris Agreement. These targets are best summarized by the headline used by New York City, “80-by-’50,” calling for an 80% reduction in greenhouse gas emissions by 2050.

Collectively, these so-called Climate Mayors’ cities already represent more than 70 million people – a population close to that of Germany. The reasons for these commitments are varied but are always some combination of economic development, social responsibility, local and global environmental concerns, resilience, and energy reliability.

For example, a recent community energy plan we developed for a North American city of about 220,000 people indicates why cities engage. Within 30 years, the total emissions of this city will be half what they are today. The current $850 million spent on energy will be more than halved, with a far higher percentage of the remaining energy value retained in this city. The same plan calls for a comprehensive efficiency increase in the city’s homes and buildings, along with substantial changes in the energy supply and distribution structure, including expanded district energy. Industrial and commercial areas will be preconfigured to meet the specific energy needs of incumbent and new investors. This could include making nontraditional utilities such as compressed air or process steam available and offering waste energy recovery services.

This city confidently expects to create more than 3,000 short-term jobs and generate more than $3 billion of local economic activity. It also expects to make major progress toward meeting the “80-by-’50” goal.

To a first approximation, the U.S. Climate Mayors’ cities have a population equivalent to more than 300 cities like this example. By any standard, U.S. cities embarking on developing and implementing plans like these will create a vast new market for energy- and climate-related goods and services. The key question will be whether this market will be served predominantly by local companies adapting and scaling up their offerings or by non-U.S. companies bringing their offerings to the American market. The reality will be some combination of both, with many opportunities for creative global alliances.

From a business opportunity standpoint in North America, it is important to recognize that Canada’s policy framework is very different from that of the United States. Canadian cities are being challenged with similar “80-by-’50” goals as a matter of national policy, effectively expanding the North American market for innovative community energy solutions by another 30 million people.

Looking beyond the U.S. and Canada, the remaining 75% of the world’s GDP remains within the Paris Agreement, with just about every major country putting in place policy changes to decarbonize their economies. In one recent example, the EU Parliament upped its buildings efficiency target from 30% to 40%; this shift is expected to create thousands of new jobs and to demand new and innovative technical and business solutions.

On the adaptation side of the climate discussion, the need for more-robust urban structures and energy supply systems is feeding new market opportunities already measured in the billions of dollars.

The business message is clear. The global market shifts resulting from policies to decarbonize energy systems are deep, wide, and growing. Companies in the United States that look at this opportunity with a global view, rather than the narrow lens of current U.S. federal energy and climate policy, are going to capture major growth opportunities both at home and abroad.