The Village Green

A blog about how Canadians can achieve energy independence by powering down and then powering up the right way.

President Obama spoke today to the climate change summit convened in New York.  In his speech he addressed the gravity of the climate change situation and pledged significant US action on the front, calling for all countries, rich and poor, to similarly take action. 

While the climate change focus in public opinion is often focused on cars (i.e. SUVs and mileage ratings), the state of our buildings and the walk-ability of our cities is the real issue.  In fact, given two things that we could do today to address the climate crisis, the first I would propose is that everyone become vegetarian (the ecological footprint of the meat industry is massive, not to mention the ethical considerations of supporting an industry largely based on institutionalized cruelty).  The second thing I would focus on however would be the state of our buildings.  They are massively energy inefficient. 

Energy efficiency as a $170 billion annual opportunity 

Investing in and financing efficiency undertakings also presents a fabulous business opportunity for entrepreneurs, investors and property owners alike.  Given the global economic meltdown, the result of a financial industry obsessed with ever more exotic computer models and abstractions, investing in “insulation” sounds downright small-town, pedestrian and unsophisticated.  Almost rube-like.  

Perhaps that’s a good thing given what the financial geniuses of Wall Street have done.   As Warren Buffet – a man lionized by an industry that never seems to follow the very advice he is praised for in the first place – has said, if you don’t understand it, don’t invest in it.  Most people understand insulation.  They don’t understand credit default swaps. 

According to McKinsey Consulting, the global market for energy efficiency work is $170 billion per year with an average project return of 17%.  By comparison, North American equity markets (i.e. stock market) have a long term historical rate of return ranging from 8% - 10%.  Also, capital appreciation on stock market returns are subject to taxation.  Returns resulting from energy savings on the other hand are effectively sheltered from taxes in that “saving money” is all about after-tax dollars for property owners. 

One final kicker is that McKinsey modeled its study using $50 / barrel oil as its benchmark.  Oil is now trading above $70 per barrel. 

Happy investing.  Happy equinox.  

Gabriel 

September 2009