Business Case for Climate Action

Building Your Own Business Case

Building Your Business Case

This is a high-level rationale for starting or deepening action across government operations and out in the community. Specific actions should have their own business cases that more fully enumerate the costs and the benefits. Some of the financial tools, such as life cycle costing, life cycle analysis and triple bottom line analysis can help decision makers evaluate infrastructure development strategically and inform business case development.

There is a compelling case for climate action. On top of avoiding serious runaway climate change, investing in emission reductions generates a wide range of benefits. These benefits are both quantitative such as savings from energy efficiency and reduced operation and maintenance, and qualitative like improved public health and employee morale [1].

Many organizations, including local governments and businesses, that are successfully reducing their emissions are increasingly using a “triple bottom line” approach that captures the diversity of social, economic and environmental costs and benefits.Using a triple bottom line is particularly appropriate in light of the world’s most comprehensive review of climate change economics commissioned by the UK Government. “Climate change is the greatest market failure the world has seen” according to Sir Nicholas Stern, author and former World Bank Chief Economist [2].

Indeed, the cost of fossil fuel combustion on the atmosphere has not been integrated into the price of the coal, oil and gas we consume. Our communities are now paying for this with ecosystem impacts like the pine beetle infestation that has devastated $43 billion worth of lumber in BC, and more frequent and intense weather episodes such as floods, droughts and windstorms [3].

This triple bottom line business case is based on six elements. Because taking action involves doing things differently, transcending every one of these elements is LEADERSHIP.

 Leadership Advantage

By driving innovation in their own operations, local governments can strengthen employee performance and morale, build capacity that be extended to the broader community, and prepare residents and local professionals who construct and use the built environment for the increased energy and resource efficiency demanded by current and future markets.

  • A study by Lawrence Berkeley National Laboratory showed improvements to indoor environments commonly associated with building retrofits can reduce health care costs and work losses from communicable respiratory diseases (9-20%), reduced allergies and asthma (18-25%), non-specific health and discomfort effects (20-50%) [4]. A US study of 4000 employees found absentee rates are 35% lower in offices with higher ventilation [5].
     
  • Employee productivity improves with the benefits associated with building retrofits: control over lighting (.up to 11%), ventilation (up to 3%) and temperature (up to 15%) according to a comprehensive Carnegie Melon meta analysis [6]. A 2% gain in productivity alone is sufficient to justify an expenditure [7].
     
  • As well as reducing expenditures, green fleet programs reduce driver exposure to air pollution and, in turn, respiratory risk. Increased personal attention and training reduces accidents, and improves morale and job satisfaction [8].
     
  • By driving innovation in technologies and practices in their own buildings, fleets and infrastructure, local governments build technical, strategic and policy knowledge inside their own organizations. At the same time, architects, engineers, technicians, planners, landscape architects, builders and developers in the community acquire new skills and knowledge they can apply more broadly. The public gains exposure to practical and high performance approaches to land use, transportation, buildings, and infrastructure.
     
  • There is a regional and global trend in more efficient energy and resource use in buildings, infrastructure, land use, and transportation systems. This trend is driven by rising energy costs, regulatory change, pubic concern about climate change and other resource constraints, and significant public and private investment. Local governments planning for future markets versus today’s, or even yesterday’s markets, can help prepare the public, developers and a wide variety of disciplines for changes that will be expected in constructing our built environment.

Economic Performance

Energy efficiency improvements are not just expenditures, they are investments. Investing in energy efficient buildings, infrastructure and transportation systems in local government operations and in the broader community can improve economic performance.

  • A 2% increase in upfront costs for an energy efficient building will, on average, result in life cycle savings of 20% of total construction costs, more than ten times the initial investment. For example, an initial upfront investment of $100,000 of green building features onto a $5 million project results in $1 million of net present value over the life of the building [9].
  • By comparing operation and maintenance costs along with initial capital costs of infrastructure over its useful life, more strategic infrastructure investments can be made. The City of Hamilton found only 8% of a civic building’s cost over its 30-40 year life is the initial capital cost. Operation and maintenance accounts for 92% [10].
     
  • A typical return on investment for an energy retrofit is 8-20% (5-12.5 years). Typically, the deeper the retrofit, the greater the long term savings. After the investment is recouped, the reduced energy expenditures provide the organization with greater overall fiscal flexibility [11].
     
  • After conducting a life cycle costing analysis, the Township of Langley replaced older high emissions vehicles with energy efficiency models. The 5% reduction in fuel and repair costs more than offset the additional capital investment [12].
     
  • A life cycle costing analysis helped the City of Dawson Creek establish vehicle right sizing and premium efficiency purchasing policies that saves in excess of $15,000 every five years for some of their vehicles [13].

Asset Management

Whether infrastructure is viewed through a holistic economic or a holistic environmental lens, the result is the same: an integrated sustainability vision. Asset management includes maintaining and increasing equipment efficiency and reducing leaks. More sophisticated approaches include extracting value from “waste,” like methane and heat from sewage. Most fundamentally, it involves reducing financial liability with less infrastructure-intensive, low-density development that can be sustained through existing revenue streams.

  • A study of land and infrastructure needs for the Central Okanagan over the next forty years found conventional low-density residential development would require 20,645 acres and cost $1.57 billion to service. More compact development, would reduce land needs by half and cost $1.04 billion to service [14].
     
  • A study of two City of Surrey developments found infrastructure in a smart growth development would cost $12,000 per unit less than in a conventional development, based on equivalent average home sizes. The diversity and clustering of housing also decreases land use, land costs and the amount of paved surfaces [15].
     
  • More compact development costs local governments 30% less than low-density development, according a study of the vast Greater Toronto Area [16].
     
  • Envision Utah scenario planning process resulted in a compact growth plan that will save the region about $4.5 billion in infrastructure spending, leave 171 square miles of additional open space, and reduce per capita water use by more than 10% [17].
     
  • Given the disproportionate amount of growth in low density development and increased costs of servicing these areas, a Southwestern Ontario analysis found for every $1 dollar raised in development fees and property taxes $1.40 needs to be spent on servicing [18].
     
  • The cost of rehabilitating existing local government infrastructure across Canada to an acceptable level of repair, i.e. the accumulated “infrastructure deficit”, was estimated to be $36 billion in 2004 [19].
     
  • The BCIT Centre for Infrastructure Management found that improving management and efficiency could reasonably create additional annual financial capacity of $4 to $6 billion within existing Canadian public sector budgets [20]. Approximately half of all public infrastructure in Canada is managed by local government.

Defense against Climate Change

Wild fires, extreme precipitation events, windstorms, droughts – when natural disasters strike, local governments are on the front line. Dealing with clean-up and restoration is increasingly frequent and costly. Dealing with the socio-economic dislocation of slow moving emergencies like the pine bark beetle infestation is even more costly and complicated. More serious impacts in the future can be avoided by deep emission reductions today. Adaptation can minimize exposure to current climate change risks.

  • Infrastructure standards are based on historical climate data with the premise that past averages and extremes will represent the infrastructure’s lifespan. With our changing climate, these standards are increasingly inadequate for existing and new infrastructure.
     
  • Over the last 50-100 years, BC has lost up to 50% of its snow pack. Although total annual precipitation has increased 20%, extreme precipitation events are more intense and frequent. There are more frequent and longer summer droughts and water shortages. Overall weather patterns are more erratic [21].
     
  • The mountain pine beetle has infested 13.5 million hectares of BC forest, nearly six times the worth of annual softwood lumber exports to the US. Industry estimates the infestation risking some $43 billion worth of lumber products, and $10.2-billion worth of stumpage fee losses to the Province [22].
     
  • The insurance industry has been calling for action on climate change for a decade. According to Munich Re, direct losses from large or globally significant natural catastrophes increased 14 times between the 1950s and 1990s [23]. Insurance Bureau of Canada data is consistent and shows losses doubling domestically every 5-10 years [24].
     
  • The most recent review of scientific evidence by the Intergovernmental Panel on Climate Change concluded global emissions need to peak before 2015, with 50% to 85% reductions below 2000 levels by 2050, if we are to avoid tipping points with dangerous disruptions such as severe agricultural collapses, water shortages, droughts, and sea level rise [25].

Economic and Social Development

Complete, compact communities and sustainable energy are central to economic development. Complete, compact development promotes active lifestyles, improves human health, and fosters human interaction, strengthening community, spurring local innovation, and reducing crime.

  • In many BC communities, energy expenditures are often more than $3000 per capita per year and steadily rising. The overwhelming majority of this money leaves town destined for energy companies. For a community of 10,000, that amounts to $30 million per year. A conservation, efficiency and renewable energy strategy can keep significantly more of this money reinvested in the local economy.
     
  • Complete compact communities are more conducive to locally owned businesses that reinvest locally. Economic impact assessments have demonstrated that $100 spent in a locally-owned store generates $45 in local economic return while the same amount spent in a non-locally owned store generates only $13 in return [26].
     
  • Complete, compact communities increase the likelihood of residents and business people interacting amongst and between one another. This interaction supports the sharing of ideas, spurring local innovation and partnership [27] and strengthens a sense of community. A sense of community dramatically reduces crime [28].
     
  • Residents in neighbourhoods designed to be walkable, drive fewer miles and make more trips by foot and bicycle, improving their physical health. In mixed-use neighbourhoods, even without high-quality transit service, the share of walk trips can rise to 20% or more. According to a review of 20 recent studies, there is a statistically significant link between built environment and obesity [29]. More intensive land use can reduce real estate costs by increasing the number of more affordable housing types such as apartments and townhouses on a single site. At the same time, homes in complete, compact communities are more likely to retain their value [30].

Resilience

There is significant social, environmental and economic change and uncertainty on the horizon. According to Charles Darwin, it is not the strongest that survive, it is the most adaptable. Adaptive capacity is central to the resilience of social and ecological systems and is underpinned by enhancing diversity. We are more adaptable by increasing the diversity of sustainable energy sources; developing more transportation and housing options, and protecting our existing biodiversity. The more rapidly we do this, the better positioned we are to survive without great hardship to not only climate change, but a variety of changes that reinforce emission reductions.

  • The Stern Review of climate change economics concluded, “the benefits of strong, early action considerably outweigh the costs.” The UK Government report estimated the costs of reducing greenhouse gas emissions to a safe level were one percent of global gross domestic product; compared to a loss of up to 20% of global GDP if we do nothing [31].
     
  • National prices for gasoline increased 30% and natural gas 25% between summer 2007 and summer 2008. Continued volatility and growth is forecasted [32]. BC Electricity rates will rise 15% by 2010 [33]. Further increases are expected. Improving energy efficiency, and diversifying energy feedstocks can reduce exposure to price increases and volatility. If new sources are renewable, they can at the same time reduce GHGs.
     
  • The Conference Board of Canada reported Canada’s overall competitiveness is undermined because of the inefficiency, congestion, and costly infrastructure associated with sprawl. Amongst its recommendations for competing effectively in a world where mobility is critical for economic development, and rising energy prices are expected, the Board urges more complete, compact communities, and transit and train infrastructure investment [34].
     
  • Protecting agricultural land from low-density development in an era of increasing food costs driven by rising energy costs is a prudent risk management strategy and will need to become a key part of the strategy to reduce greenhouse gas emissions. British research estimated the average family of four emits annually 4.2 tonnes of greenhouse gas from their home, 4 tonnes from their vehicle, and 8 tonnes from the production, processing, packaging and distribution of the food they eat [35].
     
  • Complete, compact communities help protect green space that supports long-term human and ecosystem health. Less impervious surfaces protect ground water sources and reduce surface runoff, in turn reducing flooding, supporting fish habitat, and safeguarding drinking water. Pollinators depend on healthy ecosystems and vice versa. The honeybee and bumblebee contribution to BC’s commercial agricultural sector alone is estimated to be $267 million [36]. In the face of growing climate change and population growth, protecting green space is important for increasing ecosystem resilience and also human health.
     
  • Demand exceeds supply of compact, mixed neighbourhoods that support a greater choice of transportation modes [37]. This market demand is growing with as the baby boom generation retires, downsizes and looks for easy access to services and good mobility without necessarily driving themselves.

Resources

The following two publications have well developed rationales for climate action:

  1. Curran, Deb. (2003). The Case for Smart Growth. West Coast Environmental Law. http://wcel.org/resources/publication/case-smart-growth
  2. Federation of Canadian Municipalities. (2003). The Business Case for Cutting Greenhouse Gas Emissions from Municipal Operations. http://www.fcm.ca/Documents/reports/PCP/The_Business_Case_for_Cutting_Greenhouse_Gas_Emissions_from_Municipal_Operations_EN.pdf [1]
     

[1] Federation of Canadian Municipalities. (2003) The Business Case for Cutting Greenhouse Gas Emissions from Municipal Operations

[2] Stern, Nicholas. 2007. The Economics of Climate Change: The Stern Review. Cambridge Press
[3] Stueck, Wendy. (2007). “The pine beetle's deadly march” in Globe and Mail. August 31, 2007 
[4] Fisk (William J.), “Health and Productivity Gains from Better Indoor Environments and their Implications for the U.S. Department of Energy”, 2000 
[5] Milton, Glencross and Walters, “Risk of Sick Leave Due Associated with Outdoor Air Supply Rate, Humidification, and Occupant Complaints”, Indoor Air 10(4), 2000: Referenced in : US DOE, “The Business Case for Sustainable Design in Federal Facilities”, August 2003.
[6] Kats, Greg et al. (2003). The Costs and Financial Benefits of Green Buildings: Report to the California Sustainable Buildings Task Force. 
[7]Lucuik, Mark et al. (2005). A Business Case for Green Buildings in Canada. Canada Green Building Council for Industry Canada
[8] Åke Blomqvist, Philippe Crabbé, George Dranitsaris, and Paul Lanoie, (January 2000). Climate Change and Health Economic Advisory Panel – Final Report on Health Impacts of Greenhouse Gases (GHG) Mitigation Measures and Deutsche Post AG, (2008). Energy-saving driving techniques.
[9] Kats, Greg et al. (2003). The Costs and Financial Benefits of Green Buildings: Report to the California Sustainable Buildings Task Force.
[10] City of Hamilton, Corporate Buildings & Real Estate Department. (February 20, 2001). State of the City’s Infrastructure (Council Presentation)
[11] Boston, Alex and Shaun Martin. (2007). Green Civic Building Strategy (presentation for multi-stakeholder discussion). HB Lanarc and Shaun Martin Consulting.
[12] Township of Langley
[13] City of Dawson Creek

[14] Ramlo, A. (2000). Change Management: A Framework for Community and Regional Planning

[15] James Taylor Chair in Landscapes and Livable Environments Technical Bulletin No.2 (2000). Case Study: Status Quo Standards versus Alternative Standard, East Clayton – two alternative development site standards compared. 
[16] Blais, P. (1995). The Economics of Urban Form: Appendix E. Greater Toronto
[17] Ewing, R., K. Bartholomew, S. Winkelman, J. Walters, and D. Chen. (2008). Growing Cooler: The Evidence on Urban Development and Climate Change. Washington, D.C.: Urban Land Institute (p. 10)
[18] Diamond, Jack. (May 18, 2008). “Sprawl is our 'Inconvenient Truth:’ Increasing densities do not have to compromise livability,” in Globe and Mail.
[19] Infrastructure Canada. (2004). Performance And Potential 2004-2005: How can Canada prosper in tomorrow's world?
[20] BCIT Centre for Infrastructure Management.
[21] B.C. Ministry of Environment. 2007. Environmental Trends in British Columbia: 2007. State of Environment Reporting. Victoria, BC.; and BC Government. 2008. Climate Action Plan. Victoria, BC. 
[22] Stueck, Wendy. (2007). “The pine beetle's deadly march” in Globe and Mail. August 31, 2007 ; Ministry of Forests and Range. 2008. Mountain Pine Beetle Resource Centre
[23] While some losses can be attributed to more infrastructure in vulnerable areas, the insurance industry identifies climate change as the primary factor. Figures are adjusted to inflation. Source: Munich Re NatCatService 2005 Geo Risk Research Department
[24] Insurance Bureau of Canada. (May 4, 2003) Hurricane Juan insurance tab tops $113 million: points to need for preventive measures.
[25] IPCC. (2007). Climate Change 2007, Fourth Assessment Report.
[26] Civic Economics. (2002). Economic Impact Analysis: Local Merchants vs. Chain Stores 
[27] E. Glaeser. (1997). Learning in Cities. National Bureau of Economic Research Working Paper 6271 
[28] Local Government Commission, (2002). Land Use Planning for Safe,
Crime-free Neighborhoods.
[29] Ewing, R., K. Bartholomew, S. Winkelman, J. Walters, and D. Chen. (2008). Growing Cooler: The Evidence on Urban Development and Climate Change. Washington, D.C.: Urban Land Institute (p. 6, 68)
[30] Curran, Deb. (2003). The Case for Smart Growth. West Coast Environmental Law.
[31] Stern, Nicholas. 2007. The Economics of Climate Change: The Stern Review. Cambridge Press.
[32] Sturgeon, Jamie. (August 21, 2008). “Gas prices push inflation to five-year high,” Financial Post
[33] BC Hydro. 2008. Residential Electricity Rates.
[34] Brender, Natalie, Marni Cappe and Anne Golden. (2007). Mission Possible: Sustainable Prosperity for Canada, Volume: Successful Canadian Cities. Conference Board of Canada.
[35] Elm Farm Research Centre and Sustain. 2001. Eating Oil: Food Supply in a Changing Climate. 
[36] BC Ministry of Agriculture and Lands. (2004). Estimated Value of Honeybee and Bumblebee Pollination in BC.
[37] Lawrence Frank, Sarah Kavage and Todd Litman prepared for Smart Growth BC, Promoting Public Health through Smart Growth