Addressing and overcoming barriers for energy savings in business – experiences from 7 municipalities facilitation of 1

1. Addressing and overcoming barriers for energy savings in business – experiences from 7 municipalities facilitation of 100 Danish companies By Kasper Dirckinck-Holmfeld Department of Planning, Aalborg University Copenhagen, A.C. Mayersvænge 15 DK-2450 København SV Email: kadir@plan.aau.dk

2. Content • Introduction – Evaluation of Carbon 20 project • Role and approach of the Local Authorities as facilitators • Evaluating the Carbon 20 concept for facilitating CO2 reductions • Barriers for Energy savings in Industry • Conclusions

3. Introduction – Outset • Energy savings at end-users are high on the political agenda internationally and in Denmark. • Energy savings are considered a cost efficient mean to achieve GHG emission reduction and industrial sector has a huge untapped potentials for cost- efficient savings (IPCC 2007). • Jaffe and Stavinshas termed this an “Energy efficiency gab” (Jaffe and Stavins1994). • Calls for political action to address this gab (Jaffe and Stavins 1994 and 2005; Sorrel et al. 2004; Paton 2001; Thollander et al. 2007, Lees 2012, Armstead 2012; Fleiter et al 2012).

4. Introduction – Carbon 20 • 7 Danish municipalities (Local Government/Authorities) • Objective: engage 100 companies to lower GHG emission by 20% • Means: • Specific voluntary agreement on each company, including energy screening by energy consultant/-utilities • Forming of network • Foster that 20 companies go beyond optimisation and implementation of known solutions. • Internal capacity building among caseworkers in the municipalities • Organised: • Environmental Regulation/Compliance monitoring units (6 municipalities) • Special unit for promoting voluntary action beyond compliance (One municipality)

5. Role and approach Local Authorities

6. Role and approach Local Authorities • Knowledge Bank vs. Knowledge Broker • Teacher vs. Tutor (Malmborg 2004 and 2007) • Expert Process Consultant (Change Agent) • Political Reflective Navigator (Broberg and Hermund 2003) • Ability to support establishment of ‘political programs’ on environment • Ability to navigate in organizations • Ability to understand and mediate or translate between different ‘languages’ • Ability to change between different roles and mobilize different types of knowledge

7. Role and approach Local Authorities • During internal capacity building activities an on-going discussion about with competences is needed. • On one hand: Caseworkers accustomed to compliance monitoring calls for rather technical knowledge as a mean to appear as competent partner • Opposite: the ones from municipality not involved legal compliance advocate for much broader approach in respect to the process. • However agreement seems to arrive at a mix…..

8. Role and approach Local Authorities • Reflective Dialog partner • Apply a flexible approach in order to address companies at their premises • Bring to play diverse competences depending on situation combining • basic insight into the technical areas in terms of identifying overall potentials and focus areas, • knowing where to direct the companies for more specific guidance. • be able to show interest in the companies experienced challenges • be able to align their agendas to offer suitable contributions to solutions to the companies experienced challenges.

9. Carbon 20 concept for facilitating environmental improvements

10. Carbon 20 concepts for facilitating environmental improvements • Scholars evaluation political programmes addressing SME advocate for • a free or subsidized preliminary screenings of potentials and solutions • tight facilitation of implementation. (Thollader and Dotzauer 2010, Bradford and Fraser 2008, Lees 2012)

11. Carbon 20 concepts for facilitating environmental improvements • Implementation of environmental improvement – EMS

12. Carbon 20 concepts for facilitating environmental improvementsCarbon 20 process Follow up visit Involvement process Reporting CO2 Action plan Screenings

13. Carbon 20 concepts for facilitating environmental improvements1) Involvement process • The timeframe from first promoted until specific serious engagement efforts is considered critical for the companies motivation to participate. • 100 Companies was asked for a preliminary proclamation (no binding) of participation as part of the preparation for the application for EU • Application processes long • Process of reconfiguration of set-up of for implementation and agreeing on a concept to bring about to the companies • Several of the preliminary companies had either already began the work themselves or lost interest judging the project to bureaucratic. • One of the municipalities had to alter involvement strategy a year into the project • Must companies actually less than 2 years for actual implementation

14. Carbon 20 concepts for facilitating environmental improvements2) Technical Screenings • Agreements where several consultant utilising Energy Saving Obligation for Energy utilities • the consultants agree to offer a screening free of charge for the companies, but with a possible compensation by the project on specific • Caseworkers generally found the screening valuable • As basic outset for the dialogue process with the companies, • As hand-on option to gained knowledge by participating in the screenings, • Some tensions for the setting related to:  • Confusion about on the terms for the project compensating for the screening • Lack of precise understandings of the overall mechanism by all actors • Failure in actually establishing a proper business models that accommodates the saving achieved for the energy utilities involved providing the screening • Experienced lack of commitment due to no up-front payment • Confusions about the responsibilities in the following up process • Lack of actual savings achievable in several of the smallest companies to actually justify the time spent on a detailed screening • Most of the actors do sees possibilities for continuing and extending the cooperation.

15. Carbon 20 concepts for facilitating environmental improvements3) Action Plan • The “action plan” • has for the vast majorities of the companies not been adopted as a useful internal working document to structure the companies implementation. • Has instead functioned as an agreement document between the municipality and company • The caseworkers • point out that used too much time with limited success trying to make the companies adopting the action plan themselves, whereas • Others had quite good success agreeing on the action plan on location after discussing the screening and other potentials. • The “action plan” as agreement document do cause some companies to be reluctance to sign and finalise the action plan before assessed the feasibility of all the options. • Several actions plan are still not finalised (under half a year left) • The companies has begun implementing solutions anyhow.

16. Carbon 20 concepts for facilitating environmental improvements4) Reporting • The majority of the companies is not shoving interest in their carbon footprint, • Conceive it a necessity in relation to the project rather than something that could be of value for them.   • It has been a challenge for the caseworkers to get the companies to report their emission • Must of the caseworkers have thus began to fill out the data themselves • but still use a lot of time and efforts to remind the companies to provide the needed data. • They criticise also the tool applied – climatecompass.dk– • The portal has until recently not been able to provide companies the possibility to follow the development in the emission year by year – just improved because feedback this project. • The calculation is solely based on national average data without the possibility to adjusting for local dataset – e.g. different values for local district heating

17. Carbon 20 concepts for facilitating environmental improvements5) Implementation • It is very important to constantly follow up on the companies to keep momentum and focus on the task. • As one of the caseworkers put is: “Energy savings etc. is not part of their normal focus and even very committed companies are often down prioritising even very favourable solutions in a busy working day, where the servicing of customers has priority. One need to accept this, but keeps on following up to keep the topic on the agenda”.

18. Barriers for Energy savings in Industry

19. Barriers for Energy savings in Industry • Sorrell basic taxonomy of 6 barriers: • Imperfect information including transaction cost, • Hidden cost, • cost of disruptions to production and staff replacement/training, technical and financial risk, • Access to capital, • Split incentives where the investors cannot fully appropriate the benefit, as well as • Bounded rationality where constraint on time, attention and the ability to process information prevent the individuals in charge making otherwise “rational” decisions

20. Barriers for Energy savings in Industry • Specific for SME – Among others: (Thollander, Danestig & Rohdin 2007, ECEEE 2012) • lack of time or other priorities (including for capital investment) • lack of access to capital/funding • cost of production disruption • Competences

21. Barriers for Energy savings in Industry • The Danish Society of Engineers (Danish: Ingeniørforeningen) in a Danish content defined 5 “obstructions” for energy savingsin business: • Lack of financial capabilities • Lack of knowledge about own energy consumption • The owner has the cost - the tenant has the income • Frames and rules that are in disfavour of energy savings • Inability to follow-up and maintenance - lacking someone to drive energy saving efforts

22. Barriers for Energy savings in Industry • In the Carbon 20 project these “obstructions” and barriers is adjusted to 3 barriers: • Internal capacities to implement the solution (lack of time and manpower or insight and competences) • Economic and financial barriers (access to capital, investment horizons and payback period) • Structural constrains (tax systems and he owner-tenant aspect) • Different means for how Municipalities can address those

23. Barriers for Energy savings in Industry1) Internal capabilities • Energy savings is not the core competences for participating companies • Companies focused on pleasing their customers and view energy savings etc. as something on the “nice to do” list. “The biggest barrier in getting this done is a matter of priorities. And here, the customers are always the most important! And when you're busy during the working hour with respect to production etc. then it is difficult to find the energy and resources to get these things done as well”. • For some SME and non-industrial/production based, it is however not “just” a question of internal prioritisation, but also a question of lack of competences to actually work structured with realising the identified savings.

24. Barriers for Energy savings in Industry1) Internal capabilities – Addressing such by a reflective dialog partner • The constant following up by the caseworkers is considered central for keeping focus and attention • Several of the caseworkers has began cooperate with the internal units in charge of local job creation to offer the participating companies possibilities for trainee (subsidised by state) • One municipalities have employed a internal trainee/student to facilitate the implementation process at companies. • Considerations of expanding cooperation with the job creation units to make some tailor made re-educations of the unemployed to actually act as facilitator for companies lacking the competences • Increasingly they work to align their “sales” strategy to what triggers the companies (or the represent of the companies in question) enthusiasm, whether • the technicalities or economic reasoning (cost reductions) generally assumed, or • other aspects such as e.g. linking is to the adding value for possible customers, Social responsibility etc.

25. Barriers for Energy savings in Industry2) Financial constraints • Several of the companies is experience severe constrains establishing proper finance. • Themselves challenged economically • Getting loans have become significantly more difficult. • The typically investment horizons have generally been reduced from between 3-5 years to now under 2 • However in this project - The companies seems to engage in some bigger projects, but several do lack finance for the investment and have trouble receiving loans • As a producer of world wide known designer furniture express it: "Focus right now is on the extension of the building. We are using most of our own capital on this project, and need to raise capital for the investment in respect to climate action. However, despite a 17% growth last year, the bank will not help us to invest in anything"

26. Barriers for Energy savings in Industry2) Financial constraints – Addressing by a reflective dialog partner • The involved energy consultant are starting to try to engage different financial institutions supplementing the catalogue of improvement with suggestions for how to finance it through the savings achieved. • Also began reconsidering the “product” that they provide - the whole “packet” of both identification, financing and managing the implementation. • If the packet should be feasible for SME – resource spending need to be reduced significantly • appoint student employee instead of the most experienced consultants, • make pooling of similar and “neighbouring” companies, • provided standard self-assessment tools as baselines and/or • utilise the established standardised data for calculation of saving of specific solutions often used in the domestic market rather than the specific calculations used in the business segment. • The municipality is also starting to consider how to expand the packet with both managements- and financial support elements build into the packet.

27. Barriers for Energy savings in Industry3) Structural – Owner - Tenant • For SME there is often a split of incentives between landlords and tenants in terms of who hold the investments and who actually gains in terms of reduced cost. • Several companies are thus restraining from engaging in improving the buildings envelope as considered responsibility of owner • Also companies renting the buildings experiences constrains for their involvement. "I believe that energy and climate increasingly will become a competitive parameters for office rental. But it is a challenge, as the energy use is generally included in the rent, whereas the tenants have no motivation to save. And it is actually difficult to address this, without going to sound money-grubbing…". • One has managed to find an agreement with the landlords about sharing the risk and gains in respect to a larger retrofitting of the buildings.

28. Barriers for Energy savings in Industry3) Structural - Tax • While we in Denmark have quite high taxes on the energy, that makes the saving more profitable, the taxes du also sometimes actually causes some barriers. • The utilisations of surplus heating are taxed extra • using electricity for heating is taxed higher as (until recently with the introducing of heat pumps etc.), was a rather inefficient utilisation of the electricity. • If companies cannot utilise the surplus heat themselves and would be able to distribute it either to neighbouring companies or into the district heat system, the companies will be taxed as an energy supplier. • Danish Energy Agency have argued that the utilisation of surplus heat in most cases will be profitable for the companies anyhow • However most companies conceived this as quite complicated and restrain from assessing the profitability • While some companies in this project has considered but abandoning it again, several companies are still working on regaining heat both internally, but also providing externally e.g. district heat system.

29. Barriers for Energy savings in Industry3) Structural – Addressing by reflective dialogpartner • As a public representative, the caseworkers can act as a carrier to bring the problems back to the political system and try to get some pressure up the system. • Some attempt to make both these a political issue for the Green Cities to bring up the system has been taken. • To make the heat surplus a political issue requires specific calculations showing haw the taxes makes it unattractive. • when ask to provide such, the specific companies in question actually withdraw from getting involved in that. • Recently some attempt to assess it further has been decided nationally • The municipalities could also challenge it by promoting the forming of “Heat communities” • Likewise the municipalities did have an active role in mingling the cooperation between owner and tenant in one case…

30. Conclusions I – Role of Authorities • The local authorities should be a “reflective dialog partner” that are capable of adjusting strategy and approach to align the overall targets to fit the interest and mentality of the company in question. • This means that the caseworkers • need to possess some basic insight into available solutions • be able to judge/spot overall gaps in current situations, • be able to listening and understand the situation of the company in question, • know where to direct the company for further help.

31. Conclusions II – Evaluation of applied concept in Carbon 20 • Overall the concept applied is viewed to provide a useful frame for committing and sustaining the companies focus on the agenda and forming a valuable baseline for further interactions and cooperation. • However the concepts is viewed to be to stiff • Several elements are considered out of scope for some of the companies • Has required to much efforts to collect data in respect to reporting • The value of the “Action Plan” has something companies to adopt as their own is questionable for most companies • The concept will thus need some (minor) adjustment for the future involvement of new companies

32. Conclusions III – Barriers • The project identifies 3 overall barriers related to: • Internal capacities to implement the solution related both to lack of time and insight to actively prioritise the task as well as lack of precise competences to implement solutions • Economic constrains and lack of access to financial capital for the needed investment, • Structural aspect related to Split-incentives between property-owners and tenants as well as Energy taxes on the utilisation of surplus heat. • Throughout the project the different caseworkers and other actors have in varying degree tried different means for helping the companies overcome barriers including: • A frequent and persistent following up to keep the focus on the agenda, • showing interest in the companies general business situation and interest and trying to align the energy saving and climate agenda into fitting what triggers their enthusiasm, • trying to find different settings for involving actors, that can see a business case being the ones facilitating the implementation of solution • Engage financial institutions and considering agreements where loans are paid by savings • feeding back to the political system about conceived barriers that need change in the overall regulatory frames.

33. Messages to bring on in respect to local political facilitation programmes: • Local authorities “should” take op a role of “Reflective dialog partner” • It is useful to have some framing and concept to structure the activities, but need to be flexible to allow adjusting for specific company in question • The local authorities “should” be capable of addressing various experienced barriers covering at least internal capabilities, economic constrains and structural aspect by a verity of actions including constantly following up, engage several diverse actors and bring back issues to political system.