(Originally Posted on Plan Washington Website)
Several months ago we wrote here about the Community Energy Challenge, a Northwest Washington program designed to save energy and create jobs by making it really easy for homeowners and small businesses to implement energy efficiency improvements in their buildings.
There is no doubt that the program is effective saving energy; participants in the CEC are saving a combined total of more than $645,000 every year, an average of a 23% reduction in energy costs for each participating homeowner. This is the equivalent, in carbon terms, of taking more than 1,300 cars off of the road.
We are now pleased to release the results of a new analysis of the economic impacts of the program that shows a powerful boost to the regional economy too. The problem with writing about an economic analysis, of course, is the risk of being boring. So we’ll aim to keep this high level and visual.
One dollar in public spending on the Community Energy Challenge results in $5.27 of economic activity in the local area.There are three reasons why:
- Initial public investment in the program is used to make it easy for building owners to upgrade their homes and businesses, but the public funding is more than matched by private investment and by utility rebate programs.
- When local contractors are used, there is an economic multiplier effect (indirect and induced spending) from purchase of supplies and equipment as well as employees with more money in their pockets, much of which gets recirculated.
- Money spent making energy efficiency improvements reduces future costs. And even though those cost savings haven’t all happened yet, the net present value of that future revenue is significant.
A blower door allows the analyst to determine air leakage from the home. (right)
So the next logical question is whether $5.27 is a good result or not. To determine that, we conducted a base-case analysis which imagined that the program never happened, and that instead of homeowners and businesses making efficiency improvements and instead of utilities providing energy efficiency rebates, all of that money was provided as an income increase for the middle class (imagine a tax cut or a utility rate decrease). The result was $1.52 in regional economic activity for every $1 of public spending. Far more economic investment occurs in the community when the public funding is directed to energy efficiency.
A Smart Way to Fuel Economic Growth
Energy efficiency investments are a smart way to fuel economic growth. A study done a few years back by McKinsey and Company showed a staggering amount of cost-effective energy efficiency improvements in the U.S. economy. From a business standpoint, these improvements would be smarter to make than putting your money in a typical market-rate investment.
These improvements are not being made mostly because of seemingly small barriers, the most significant of which is that people don’t really know what to do. The Community Energy Challenge was designed to help clear these small barriers.
And what we have shown is that once those small barriers are removed – once homeowners and business owners know what kinds of efficiency improvements make the most sense, a well-trained workforce exists, and access to capital is made easy – the path is open for making more effective investments in our economy.
Of course this also affects public revenue streams. The model suggests that the $1.6 million invested in the program will generate about $760,000 in taxes in Washington state (about 60% of this will be federal taxes; the rest will be state and local). These revenues show up in different coffers and are spread out over time and over many different projects. But the model shows us that the value is significant. As economic development tools, these kinds of programs can provide a meaningful boost for government budget writers.
Implications For State Policy
All of this could have implications for future policy in Washington State. The Community Energy Challenge is one of eight similar efforts administered by the Washington State University Energy Program. As the state considers options to tackle ocean acidification and climate change, one of the big concerns will be how such efforts could impact the state’s economy. Energy efficiency retrofit programs like these, scaled up, could be a great way to have a positive impact on jobs and the economy while also cutting carbon pollution. These kinds of win-win opportunities are an important component of any carbon reduction strategy.
Technical notes: The economic impact assessment of
Community Energy Challenge was conducted by Graham Marmion, an economics student at Western Washington University, as part of an internship with Sustainable Connections. Graham’s work has been reviewed by his faculty advisor Dr. Phil Thompson; and his assumptions were checked by the program directors of the Community Energy Challenge. The IMPLAN input-output model was employed. It allows a researcher to describe economic activities and receive numerical estimates of the changes in economic output and employment that happen as a result. In short, the model boils down macroeconomic equations into economic multipliers tied to different industries, and describes the changes to the economy by comparison to a base-case scenario. In this case we assumed the equivalent of a tax cut for middle income households in the four-county region to be the base-case comparison. The Community Energy Challenge keeps track of total expenditures for all of the energy efficiency projects completed and provided estimated average breakdown between labor costs and equipment costs for typical project types. Results calculated were for the projects completed in 2013. We’re happy to provide additional details.
* Editor’s Note: This is a guest authored piece and does not necessarily reflect the views of the Washington Business Alliance.