Small businesses are deeply concerned with the economic impacts of the proposed cap-and-trade legislation currently pending in Congress. Although small businesses will not be covered by the cap, if a price is placed on carbon, small businesses will feel the economic impact through energy price increases. This is particularly true in the Midwest which is heavily reliant on carbon intensive coal power for its electricity generation.
With the hot national debate over cap-and-trade, it is understandable that everyone is focused on the potential impacts of climate legislation on the economy. However, I think this ignores the broader reality. As discussed on this blog before there are other factors at work driving energy prices higher. (See, Cap and Trade: Job Killer or Call to Action for Coal States) These include:
- A new program requiring control of mercury emissions from coal fired power plants
- Ever tightening federal ozone and fine particle pollution standards that will result in additional compliance costs for utilities
- A revamped cap-and-trade program for utilities in light of the Court decisions regarding the Clean Air Interstate Rule
- Potential tighter regulations on ash ponds and other utility wastes
If commodity prices rebound as a result of the economic recovery, price increases will be compounded.
For small businesses who are not prepared, high energy prices could force them out of business.
So, how can small businesses meet this threat through strategic action? I would submit that any small business that is even moderately energy intensive should aggressively consider adopting energy efficient practices.
Today, the National Small Business Association released a report assessing the value of one practice, called "on-bill financing", that shows tremendous promise in reducing energy usage by small businesses. According to the report, energy-efficiency programs such as on-bill financing can help the average small business save $4,932—and oftentimes more—every year on its energy bills.
On- Bill Financing- How it Works
Despite the benefits of energy efficiency projects, common barriers exist that prevent many businesses from implementing cost saving measures. As detailed in the report, these include:
Cash flow: With tight margins and relatively small revenues, many small businesses find it challenging to undertake new capital investments, even if they will save money over time. Fifty-two percent of small-business owners see cash flow as the primary barrier to investing in energy efficiency.
Up-front capital required: A typical energy-efficiency project might cost from $7,500 up to more than $20,000, with some projects costing a bit less and a few costing far more.
Energy efficiency is only one priority among many: Small-business owners are heavily focused on the business at hand: managing inventory, maintaining payroll, providing health insurance, etc. They rarely have the time to focus on their energy bills, on energy-efficiency measures, or on their greenhouse gas emissions profile.
On-bill financing overcomes these barriers by: 1) identifying projects for the customer; and 2) providing up-front payment for the cost of the project and favorable repayment terms.
How are projects identified? Utilities identify businesses that may benefit from energy efficient project. The utilities will use specialty trained contractors to perform an energy audit of the business to identify opportunities to reduce usage and save money. The customers than elects whether to implement the project. If the business implements the project it gets financed by the utility and repaid over time on the customers bill.
The cost savings and the ability to reduce the impact of increasing energy prices are tremendously important to the vitality of small businesses. There are also major environmental benefits as well. The report concludes that small business could collectively reduce greenhouse gas emissions by 259 million tons each year if they improved their energy efficiency by just 25 percent.
A strong push for robust on-bill financing programs seems warranted.