Develop for the Long Term

Embracing the Clean Energy Economy

The implications of HR2454 and increasing global economic development competitiveness

Legislation currently pending in the U.S. Senate possesses the potential to create a monumental transformation of the focus of economic development.  This is primarily due to the bill’s provisions for renewable energy usage, new residential and commercial energy efficiency standards, and the creation of a “cap and trade” system for regulation of greenhouse gas emission (GHG).  The bill, H.R. 2454 “American Clean Energy and Security Act of 2009” (ACES) has stirred debate related to our ability to foster economic development and growth under more stringent environmental regulations.  

Strong arguments have been made on both sides, with the opposition stating that bill will: (1) Result in escalating energy costs, (2) Negatively impact the economy due to losses in the manufacturing, mining, housing/real estate industries (among others), and (3) Drive businesses overseas in order to reduce costs.   

Proponents of the bill, on the other hand, believe that the U.S. must begin to minimize its impact on the environment and strive to meet to the challenges of climate change head-on.  Supporters of the bill believe that effective legislation will: (1) reduce our dependence on foreign energy supplies by bolstering domestic renewable energy production; (2) promote energy efficiency and alleviate waste in usage and production; (3) promote growth in new industries supporting “green” technologies; (4) aid in mitigating climate change impacts by reducing carbon output; and (5) reaffirm the U.S. position within the global marketplace increasing its ability to compete and attract new clean energy development.   

This legislation proposes fundamental changes in how our economy operates, and changes of this stature are not always the easiest to swallow.  One option is to “stay the course” and maintain the status quo, or “business as usual” approach, which raises the issue of whether this would mean continuing to rely on obsolete methods of production, inefficient energy practices and wasteful use of our natural resources.  If we continue our present course, which is likely to include profiting from the use of the soon-to-be obsolete practices for the next 10-20 years, some argue that we will find ourselves in the backseat of the global economy in the coming decades.  However, if we embrace change, capitalize upon new market opportunities, we have the potential to bolster local, regional and national economies and strengthen our position in the alternative energy industry sectors.   

In this discussion, and the recurring theme throughout this blog, understanding the long term implications of our policy decisions are paramount.  We need to evaluate these decisions based on their ability to place us in the most advantageous position to maintain to achieve a balance between economic growth and progress, environmental consciousness and social well-being.

To begin, it is important to provide a synopsis of the bill details – 

Renewable Energy Standard (RES)

This section requires retail utility providers that sold more than 4 million megawatt hours of electricity in the previous year to:

• Purchase 6 percent of their electricity from renewable resources by 2012
• Purchase 20 percent of their electricity from renewable resources by 2020, steadily increasing from 2012.  

Energy Efficiency

This section states that new commercial and residential construction will be required to adhere to national building codes that require:

• A 30 percent reduction, by the date of enactment, in energy use relative to a comparable building construction in compliance with a baseline code.
• A 50 percent reduction by 2014 and 2015 for residential and commercial development, respectively, based upon the baseline code.
• A 5 percent reduction thereafter every three years through 2030.  

The baseline code for residential buildings is based upon the 2006 International Energy Conservation Code (IECC) published by the International Code Council.  The baseline code for commercial buildings is based upon the code published in ASHRAE Standard 90.1-2004.

Cap and Trade

The cornerstone of the bill, and most controversial, establishes an economy-wide GHG cap and trade program, which places a national cap on emissions and distributes allowable emissions among sources.  The program allows the trading of emissions credits in order to promote the most economically efficient emissions reductions as determined by comparing permit and mitigation costs.  In terms of emission reduction goals, the ACES aims to reduce GHG emission sources 83 percent below 2005 levels by 2050 with nearer term reduction of 3 percent, 17 percent and 42 percent in 2012, 2020 and 2030, respectively.  A portion of the GHG permits will be auctioned off and the rest will be free, with the ratio of auctioned permits increasing over time – with the funds raised from auction being invested in alternative energy.  

As HR 2454 continues on its path through the legislative process, amendments to the specific requirements, goals and target figures will be forthcoming and inevitable.  The fact that a bill of this magnitude, in terms of sheer scope, has made it into Congress underscores that the concept of establishing sufficient regulations to curb our impact on the environment and address climate change, while promoting a clean energy economy, has a high profile at the federal level.

Benefits from establishing a clean energy economy

This bill has created an opportunity to implement a fundamental transformation in the ways in which our economy operates in order to promote energy independence, BY placing an emphasis on new alternative energy jobs and transitioning the U.S. into a clean energy economy.  

Regulations on energy efficiency for new commercial and residential construction are essential in order to equitably promote sustainable development.  Despite the potential for higher costs, local producers can partner with economic developers to showcase their community’s commitment to producing environmentally responsible products.  Increased energy efficiency standards for new development will also provide substantial benefits for occupants, especially those of lower socioeconomic groups, lowering annual utility bills.  

On the whole the bill represents a bold attempt to promote a more responsible, sustainable built environment while strengthening our long-term economic prospects.  If energy is the driving force behind the global economy; we must consider whether we should become sustainability stewards and lead the way into the clean energy economy of the 21st Century.

Municipal Sustainability Programming (SP) in Hard Times

There are advantages to undertaking progressive programmatic changes in periods of fiscal stress.  Part of sustainability programming (SP) involves finding ways to accomplish more with less, and generally making operations more efficient.  When revenues are at normal levels, increased efficiency can translate into expanded services.  Otherwise, doing more with less means maintaining levels of service at lower costs.  If reductions in force are going to be necessary from a purely fiscal standpoint anyway, SP opens a pathway to an RIF rationale that might be more palatable to the constituency as well as the staff, at least in the long run.

Fiscal policy reform is not necessarily a direct component of sustainability programming, but it could be an indirect one.  For example, fiscal policy is sometimes linked to planning/zoning policy that tends to compromise community enhancement – including possibly SP practices – for the sake of expedient business development.  This is of course a common issue for municipalities that rely heavily on location-specific sales taxes.  Although substantive fiscal reform often exceeds the authority of municipal government, some steps can be taken.  For example, SP can be an avenue for pursuing neighboring-community or other regional partnerships, which could include tax-sharing, inter-community service agreements that take advantage of efficiencies based on economies of scale (or some other competitive advantage), or other fiscal policy improvements.

Finally, sustainability programming allows communities to make progress in the face of adversity, which sends a strong positive message to constituents, potential investors (in both the private and public sectors), and city staff.  Staff get a double morale boost, since a slowing economy can truncate the work load of some operations to the point of tedium.  “Taking action” is the normal path to both psychologically and economically transitioning from a recessionary to a healthy economy.  Government has taken the lead in this in the past, and progressive action can take place in local governments too.

A Strategic Approach to Sustainability and Economic Development

Typically, economic development and sustainability are not considered synonymous.  By this we mean that sustainability practices tend to be viewed as impediments to economic development.  However, if sustainability practices are utilized correctly, it can be quite the contrary.  Economic development strategies can benefit greatly through the incorporation of sustainability programs.  Sustainability provides a way for economic development practitioners to:

•    Distinguish their community from competing places
•    Demonstrate a community’s commitment to quality development.
•    Encourage mechanisms and activities related to public/private partnerships, which in general increase the options for attracting preferred businesses.

There are many emerging challenges that lie between the paths of economic development and sustainability.  Energy usage and availability will prove to be major determining factors in successfully merging these two paths.  Increasing energy costs will create not only new problems, but new opportunities as well.  With increasing energy costs, there will be substantial shifts in current economic development trends.  This will, for one thing, begin to redistribute wealth from the growing periphery and edge cities back to denser urban environments. 

This topic will focus initially on constraints of current development practices and the effects of the shift back to the city, followed by the identification of strategies at a multitude of scales that are necessary for adjusting to rising energy costs.

Constraints on commuting:

Real estate

•    “Drive until you qualify” properties decrease in value.
•    Close-in properties increase in value.
•    At periphery, properties threatened by obsolescence.

Infrastructure

•    Reduced demand at periphery
•    Increased demand at close-in properties
•    Gas tax decreases; how does transportation funding change?

Institutions

•    Pressure to upgrade school quality in inner cities
•    Investment in new facilities shifts from periphery to close-in locations.
•    Reduced parking demands
•    Adapt transportation systems:  passenger rail, bike lanes on major streets

Edge cities, other suburbs

•    Heightened challenges to achieve jobs/housing balance and general economic diversity
•    Re-interpret the value, potential, etc. of existing transportation systems.

Strategic options [broad to specific]

To address the constraints mentioned above we have identified a series of strategic options that can occur at different scales.  This will allow regions, cities, institutions and households to discover strategies to encourage responsible, sustainable development. 

Regional:

The potential for re-distribution of economic activity is a regional issue, in the following sense.

•    The dictates of location-choice have changed along with the steepening of land-value gradients.  Firms should re-evaluate their need to be in certain locations, and explore ways in which operational components could be re-distributed in order to maximize values (in land and facilities).  Commuting patterns of employees are more critical than ever, and freight costs could also be more important factors than they have been in the past.  A regional body could provide data from transportation models (which could be updated with present cost constraints, sample commuting data from firms, etc.), suggest business location-clustering (1) based on transportation-efficient concepts (including concepts on how currently viable clusters could evolve over time into other things), provide location-analysis models for firms, and provide communities on guidelines for balancing populations with business mixes.  Any incentives connected with this type of effort should be regionally coordinated if efficiency is to be truly maximized.
•    A regional location strategy could make the region more economically efficient, and thereby more attractive to employers.
•    The coordination of regional transportation is now more important than ever, and existing systems need to be re-interpreted and re-positioned from a regional perspective.  Creating passenger rail systems, for example, will require the kind of political leverage a region-level effort could deliver.
•    Regionally coordinated housing policies can help smooth changing housing-market conditions, for example by analyzing the potential for encouraging housing for the elderly at peripheral locations (assuming critical services could be provided in reasonable proximity), thereby freeing up housing for commuting workers in more advantageous locations.

For cities of all types:

•    Evaluate economic base in terms of potential effects on local industries and firms from rising energy costs and the relevant related effects, review options for remedial action at the local level for improving conditions both within industries/firms and within the community.
•    Review assets, especially transportation-related, for potential re-purposing and re-aligning with industries also facing the need to re-evaluate locations on the basis of transportation costs.
•    Conduct location-clustering analysis and review/revise economic development policies accordingly.

For peripheral cities:

•    Review options for targeting residential markets less dependent on commuting, and prepare strategies and coordinate with homebuilders accordingly.
•    Consider ways in which changes in regional economic conditions form the basis for re-defining the character of the community, for example:

o    Can the city adopt models of urban sustainability that are much more progressive than would have been acceptable in the recent past?  By doing something like this, or some other form of “re-invention,” can the city become an attraction sufficient to offset or overcome any disadvantage growing out of increasing travel/other energy costs?
o    Transportation systems, urban design principles, principles for balancing jobs and housing – all offer potential for community re-branding through innovation.

For inner cities:

•    Increase efforts to diversify housing stock to house commuters, through comprehensive programs that also consider accommodating essential services, encouraging appropriate institutional responses to the needs of all types of families, etc.
•    Re-examine redevelopment options in light of increased demand for land, growing acceptance of “urban living,” and other changes (present and evolving) in response to transportation/other energy costs.

For institutions:

•    School districts in inner cities could face the need to expand, and this might provide additional incentive to make certain that the quality of education is competitive with suburban schools, so that commuting households can be comfortable with decisions to move in order to reduce commuting costs.
•    All institutions, especially those in inner cities, could be the beneficiaries of: 1) reduced parking demand, and/or 2) land-value increases that make more intensive parking solutions practical.  The net result of both would be a gain in land usable for primary institutional functions.
•    Transportation companies need to re-evaluate all existing policies and practices relating to fuel costs, including how market segments can be more efficiently served, potential new markets, closer working relationships with regional transportation planners, etc.

For households:

•    Re-evaluate housing needs in terms of trade-offs in lifestyle, transportation costs, commute times, etc.  As part of this process, review growing variety of housing choices in close-in locations, and help home builders (by expressing opinions directly, whether asked to or not) to define preferred products, neighborhoods, etc. so that a choice to relocate closer to one’s place of employment is more palatable.

(1)  The concept of business clusters has traditionally been applied to its predecessor concept of business “agglomeration,” generally the grouping together, in a place, of businesses in common industrial categories.  These could be competing businesses or those with vertical interrelationships such as suppliers to industries producing final products.  “Location clustering,” as used here, represents a concept in which businesses group together on the basis of transportation efficiencies, the potential for replacing face-to-face communication with electronic systems, and similar factors.