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  • Getting to Green

    An administrator pushes, on a shoestring budget, to move his university and the world toward a more sustainable equilibrium.

Sustaining the cash flow
March 4, 2008 - 8:39pm

Tuesday’s item about the LA Community College District and their sustainability projects is well worth reading. A number of colleges and universities, large and small, like LACCD are working to pilot the Clinton Climate Initiative. And the general approach of contracting with an energy service company ("esco") to do the work, then paying for the work out of the savings generated, is fundamentally sound and can make projects viable which otherwise couldn’t get funded.

One quote which got my notice, however, was “what it’s [a project justified by its greenness] transformed into is a budget play — the idea that we’re going to save money in terms of the cost of installing and in terms of our operating budget.” The danger with service contracts, or any other funding mechanism which depends on future savings in the energy budget, is that the resulting energy budget (by design) shrinks.

Look, we all have to start with projects which can generate savings. Happily, there are lots of those, and the returns can be pretty attractive at current energy and capital costs. Ideally, the savings generated by the initial projects could build up to provide financing for later projects where the return might not be so attractive.

But the way most budgeting processes work, if you saved money last year, you don’t need it (and so don’t get it) this year. Once the energy budget is reduced, the baseline goes down, and future projects have to be justified on their own merits. For those of us who are driven by the “triple bottom line” (ecological and social, as well as financial), those future projects will have plenty of merit to recommend them. But viewed strictly from a financial ("cheapest is always best") perspective, the case may not be quite so clear.

The best way to address this is to “firewall” the energy budget, so that savings do become available to fund future projects. The logic is that energy is a continuing cost of doing business, and that “business as usual” will only lead to increased costs as institutions grow and fuel prices rise.

A simple firewall agreement might be something like “our energy budget last year was $5 million, and fuel prices are rising, so let’s agree that the energy budget for the next x years will not go below $5 million.” To the extent that early projects generate savings, those savings (once the initial investment is paid off), or at least the portion of the savings below the $5 million figure, would become available.

Obviously, a far better firewall would take into account both institutional growth and rising energy prices. At a fixed baseline (like $5 million), these factors could easily eat up any savings generated. But a variable baseline, indexed for both, would capture the real savings between what energy costs are in some future year, and what they would have been had the sustainability project not been implemented.

The first phase of ecological sustainability is energy conservation. But, unless a funding stream is generated which is, itself, sustainable, energy conservation can also be the last phase. Maybe your administration is more enlightened than the one I have to deal with at Greenback U. If not, see what sort of a firewall you can negotiate. Do it before an early round of conservation projects. Establish a precedent. (And get it in writing.)

Got experience (good or bad) with budget firewalls? Email me.

 

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