TRIRIGA Insights

This week the EPA released their study on the economic impact of the cap and trade program proposed in the Waxman-Markey Energy Bill. The study concluded that carbon will likely be priced somewhere between $13 to $17 (in 2005 dollars) by 2015. Under this scenario, the EPA estimates that electricity prices will increase more than 25 percent in real terms over the next decade, compared to an estimated 6 percent real increase in energy prices under the base case scenario with no price on carbon.

As you can see from the graph below, derived using EPA data, there is a clear correlation between expected carbon price and electricity price.

This conservative scenario is based on a number of assumptions about energy demand, the pace of technology innovation, and the availability and pricing of carbon offsets. Given the added uncertainty of future energy prices in a carbon-constrained economy, organizations must thoroughly evaluate their exposure to energy price increases.

Since buildings are the largest consumer of electricity, organizations need to understand how energy price increases will affect their bottom line. For example, a 30 percent nominal increase in the price of electricity over the next five years, consistent with EPA estimates, equates to increased electricity costs for an average 100,000 square foot office building of approximately $65,000. This cost increase is even more alarming when you multiply it by the total number of buildings in your portfolio.

Thankfully, the risk of steep energy price increases can be significantly abated through increased energy efficiency within your organization's real estate portfolio. Improved energy efficiency and environmental performance can be accomplished with a high return on investment, but it requires the ability to identify and prioritize opportunities across your entire portfolio in a cost effective manner.