Friday, 30 November 2007

Aligning Incentives for a Carbon Clear World

A new report by McKinsey & Co, a consulting firm, confirms what Carbon Clear has been saying all along: businesses and individuals can significantly lower their carbon footprint and save money at the same time.

The report says that the United States could cut greenhouse gas emissions by 28% at zero or even negative cost using readily available technology. Carbon Clear's own carbon management work with companies often uncovers even more low-cost carbon reduction options, from changing heating, cooling and lighting systems, to improving vehicle fleet efficiency or revisiting logistics plans. And, as one of the report's authors notes, "These changes have been around for 20 years."

Unfortunately, it isn't always so easy to put these low-carbon money-saving measures into practice.

Landlords and property developers often choose appliances, lighting systems and even building designs based on initial cost - regardless of efficiency. The tenant, with little influence over this initial decision, pays for the energy, either as part of their rent or via the utility bill.

In a nutshell, their incentives are not aligned for a low-carbon future. The landlord does not want to pay more for equipment that won't save her money, and the tenant doesn't get a say, even though he stands to benefit.

A thoughtful carbon management strategy can help better align low-carbon incentives. For example, the landlord and tenant could agree to share the monetary savings from carbon saving measures. In this case, the tenant should be willing to offset the cost of making energy efficiency investments, up to the value of the tenant's monthly utility bill savings. The extra money provides an incentive for the landlord to enact measures she would otherwise not consider. Everyone is better off and we've reduced greenhouse gas emissions.

Carbon Clear can help design other, more sophisticated approaches but the basic principle is the same. Working together, we can create win-win situations that cut carbon.

This isn't just tinkering at the margins. The Swedish utility Vattenfall estimated that there are seven billion tonnes per year of money-saving CO2 reduction options out there. It's possible for us to align the incentives to make them happen.

And that's good news for the climate.

(Carbon Clear homepage)