Factoring Carbon Pricing into Business Decisions with a Simple Tool That Could Have a Big Impact on Sustainable Buildings

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Recently, we’ve been investigating the challenges of getting to an “all electric” world. The basic fact is simple: if we are serious about meeting the climate challenge then moving to renewables and electric is the way forward.

Part of this investigation centered on heating in buildings, which represents 38 percent of the energy consumption in commercial buildings and is dominated by fossil fuel versus electric heat. (Our research indicates 85 percent of space heating globally uses non-electric energy sources with 70 percent coming from fossil fuels).

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We directed our Science Center, a small group of research analysts with a mission to research and simplify pertinent topics for our customers, to start looking into this topic. We wanted them to develop an understanding of the trade-offs between electric and fossil fuel (e.g. natural gas) based heating systems. We were curious to understand this from a business perspective and wanted to figure out the cost difference and the return on investment.

We were surprised to discover there are no easy and available tools to model this information, mainly because the dependencies are significant:

  • What is the heating system?
  • What is the efficiency between the systems?
  • What would be the carbon impact given the utility grid?
  • Where is the building located?
  • What is the cost of gas versus electricity?

And the questions just keep coming.

Putting a Dollar Value on Carbon

So, we decided this topic demanded its own easy-to-use tradeoff tool and just released the Building Heating Method Comparison Calculator. It is designed to help users understand the complex dynamics in these tradeoffs and it accompanies our newly released white paper 504, Factoring Carbon Pricing into Business Decisions: A Building Heating Case Study.

As the Science Center started researching the topic and developing the models, we realized a critical element was missing. If we, as an industry, are concerned about carbon emissions and sustainability, and committed to this issue, it became abundantly clear that we need to put a value on carbon emissions. We couldn’t provide a true business case with return on investment if we didn’t account for the cost of carbon emissions.

Many countries today put a value on carbon ranging up to €150 per ton of emissions per year. They do this in the form of taxes. And more than 1,300 companies have made their carbon prices public with a typical price in the $5-100 range. If your country or area of jurisdiction doesn’t determine the price for you, it might be a good idea to establish a personal carbon price for your company.

The Sustainable Building Challenge

The big question we had to ask is: how high a price is needed to make an impact on business decisions and drive change? Answering this question is a challenge and we didn’t come to a definitive conclusion. But, this reality emerged: with a clear value on carbon, the adoption of heat pumps becomes more likely.

If one adjusts the cost of operating different heating systems to reflect the value of carbon, the dynamic can change dramatically – even with modest carbon prices. We also found examples where using natural gas was the lower carbon solution.

Regardless of whether electric or gas wins, our conclusion is that better business decisions result when there is a value placed on carbon.

Explore More by Reading our Latest White Paper

I encourage you to get all the details by reading our white paper 504, Factoring Carbon Pricing into Business Decisions: A Building Heating Case Study. The paper takes a comprehensive look at carbon pricing and concludes that companies can make an immediate impact using internal carbon pricing. The paper also advocates for utilizing a simple metric for determining carbon-adjusted energy cost, looks at the impact of electric utility generation mix on emissions, and dives into the issues of heating system efficiency and energy rate variability. And, of course, the paper guides you through our new Building Heating Method Comparison Calculator, which provides a simple and easy way to compare different heating technologies with different utility generation mix.

Let us know what you think!

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