Closing the Energy Efficiency Information Gap for Small Businesses

Small businesses are vital to the health of the United States’ economy. They provide essential goods and services, employ millions of Americans and generate half the U.S. nonfarm GDP (1). Businesses of all sizes prioritize cost reductions, but small businesses‘which lack the monetary, personnel, and technological resources of large corporations‘are often more sensitive to cost variability. This sensitivity to cost fluctuations is especially pronounced for energy expenditures, which cost U.S. small businesses approximately $130 billion each year (2). By decreasing energy expenditures, small businesses can increase efficiency across their operations, strengthen their financial prospects and minimize their impact on the environment.

Recently, there has been some debate in the literature about the aggregate economic effects of energy efficiency on sustainability and the environment (3); in the long term, energy efficiency can result in unintended "rebound" and "backfire" effects that may negate the environmental gains from efficiency.  However, if coupled with complementary energy policies that reduce energy consumption, some scholars argue that efficiency measures can offer "simultaneous economic and environmental gain" (3). This finding suggests that policymakers must be well informed and engaged for efficiency and sustainability initiatives to prove effective.

To reduce vulnerability to rising energy costs, small businesses can invest in either energy efficiency or renewable energy generation. A number of federal programs incentivize these investments. For example, businesses adopting renewable energy generation‘such as solar cells and small wind‘are eligible for a tax credit worth 30 percent of the project’s cost (4). Additionally, the Energy Star program offers tax credits and rebates for purchasing energy efficient goods (5).

There is some disagreement among lawmakers, academics and business owners on the most effective policies for helping small businesses reduce energy costs‘some favor tax incentives, others direct subsidies or even government mandates.  However, few argue against providing access to information on these incentive programs once they are in place. Better information about energy incentive programs can increase their effectiveness by reducing the time and effort needed for businesses to learn about and implement efficiency measures.

To date, researchers have not thoroughly investigated whether information about incentive programs is effectively disseminated to small businesses. Additionally, virtually no information exists regarding small businesses’ energy consumption habits based on available information. A thorough literature review uncovered one recent study exploring energy-consumption behaviors in the commercial sector, in which the author acknowledges, "[T]here is essentially no information about how small-business decision-makers make choices about energy consumption" (6). We felt that these findings‘or lack thereof‘warranted further investigation of a topic that has potentially huge ramifications for small business owners, the U.S. economy and the environment.

We partnered with the Environmental and Energy Study Institute (EESI), a nonprofit, nonpartisan organization based in Washington DC that provides policymakers with information on environmental and energy-related issues. We worked closely with EESI to develop a study that would garner qualitative information on the energy consumption practices of small businesses in the Northeast and assess these business’ general attitudes toward energy efficiency. We used the results to identify opportunities to improve federal policies promoting energy efficiency among small businesses.

How Did We Do It?

We conducted in-depth interviews with owners or operators of 20 small businesses located in the northeastern United States (Table 1). To prepare for the interviews, we received instruction and training from Bentley psychology Professor Helen Meldrum, who has over two decades of experience conducting interviews for research. Businesses were selected using online business directories, personal contacts and referrals. Aside from ensuring the businesses represented a range of industries and sizes‘from a two-person accounting firm to a telecommunications company with 120 employees‘there were no other constraints considered when selecting businesses to interview. If a business declined to be interviewed, then a replacement business in a similar industry and of comparable size was contacted.

Table of Information on Businesses Interviewed in this Study

The 20 interviews were divided equally among four interviewers, each of whom handled all correspondence with the small businesses. We contacted each business via telephone, but only conducted five of the interviews over the phone. The remaining fifteen interviews were conducted in person. All 20 interviewees were business owners or management-level employees with detailed knowledge of the company’s energy consumption. Objective ("yes or no") questions were followed with open-ended questions to gather information on:

  • Energy consumption habits of small businesses
  • Energy efficiency habits of small businesses
  • Overall impact of energy-related needs and costs on small businesses and small business owners
  • Small business owners’ knowledge of strategies for increasing energy efficiency, including the business owners’ awareness of federal programs incentivizing energy efficiency

Speaking with business owners directly offered us a detailed perspective on the relationship between their energy-related knowledge and actions.  Rather than providing policymakers with just numbers, our in-depth qualitative interviews garnered stories that highlight real and perceived gaps in energy policy for small businesses. These insights may not have been readily apparent through a purely quantitative approach.

Findings: Small Businesses Want Large Cost Savings Now

Interviewees were open about their energy needs, habits and attitudes, and virtually all of the business owners interviewed said they would like to lower their energy costs. As the interviews progressed, common themes that spanned multiple sectors emerged.

A pervasive sentiment the interviewees expressed was the importance of immediate cost savings. Reducing costs to increase profits was the businesses’ primary motivator, and if increasing energy efficiency would lower expenses, the small business owners said they would proactively increase efficiency. However, interview responses suggest that businesses primarily take reactive approaches to energy efficiency; that is, they reduce energy consumption only after their energy costs rise. Out of the 20 businesses, only three ever had an energy audit, and some were partially or wholly unfamiliar with the practice (Figure 1 and Table 2).

Responses to Key Interview Questions

Many business owners also felt that they are not able to reduce their energy costs. Even if energy providers significantly increased their prices, many of the owners believe they have no option but to pay higher energy costs. The owner of a beauty salon said, "Every time I open my electricity bill I shriek…if [costs continue to rise] I’ll be forced to shut down," and, "There really isn’t anything out there for us to improve upon. We use a lot of high-energy things."

Our interviews suggest that these small businesses’ failure to anticipate and insure themselves against cost increases may result primarily from a lack of information about energy-related programs available to them. Most interviewees said they find it difficult to locate relevant and accurate information about energy and energy efficiency, and only eight out of the 20 interviewees were aware of federal programs that incentivize energy efficiency (Figure 1 and Table 2). Many businesses went on to say that they rely solely on their electricity and fuel providers for energy-related information. The owner of a small auto garage noted, "Every now and then I look at my gas bill and see some interesting information or statistic [about energy], but that’s about the only time I get [energy-related] information." In another case, a florist stated that although he is unaware of steps he could take to reduce energy costs, if he received information on what to do, he would unquestionably take action.

Table of Small Business Interview Responses

When asked about possible energy saving solutions, the business owners felt tax incentives intended specifically for small businesses would be most beneficial. However, most business owners knew more about the tax incentives they do not qualify for than those they do. Some of the business owners assumed that they would not qualify for federal incentive programs without actually researching whether this is the case.

Bottom line

The business owners we spoke with overwhelmingly want to reduce energy costs. However, most of them simply do not know where to find information on how to do so.

Policy Implications

Although this study had a very small sample size, the findings may have implications for public policy. Because the small businesses interviewed were largely unaware of federal programs or general actions that can reduce energy consumption, it appears that information on energy and energy efficiency is not being adequately disseminated. Therefore, policymakers interested in increasing the effectiveness of these programs should seek new channels for conveying information to small businesses. One possible channel identified by this study is small business organizations. Fifty percent of the businesses interviewed said they are currently members of a small business organization. Meanwhile, several others said they are interested in joining such an organization (Figure 2 and Table 3). All of these businesses said they would trust their current or potential small business organizations for energy-related information, but only one business said its organization currently provides such information. These findings indicate that small business organizations may be an underutilized and potentially effective channel for distributing energy-related information to small businesses.

Admittedly, deciding what the federal government’s ideal role should be in helping small businesses increase their energy efficiency is debatable. Many state governments have programs incentivizing energy efficiency, and some may see additional federal programs as unnecessary or even unwelcome. The specific policies the federal government should employ to promote energy efficiency are also open to interpretation. Tax incentives and rebate programs such as Energy Star are widely touted, but some argue that direct funding is more effective. Others may call for reduced governmental intervention across the board, arguing the government need not attempt to influence or support the private sector. Nevertheless, our study signals that there is a lack of knowledge among small businesses regarding existing policy measures supported by the federal government. Acknowledging and addressing inefficiencies among these programs would not require Congress to authorize any new programs (or additional spending) and could be seen as beneficial regardless of one’s position on promoting these or alternative measures.

Giving Small Businesses a Larger Voice on Capitol Hill

Once our study was complete, we communicated our findings to federal policymakers in Washington DC. We met with staffers from the U.S. Senate Energy and Natural Resources Committee as well as staffers from the offices of Senators Scott Brown (R-MA), John Kerry (D-MA), Jeanne Shaheen (D-NH), Jon Tester (D-MT) and Jim Webb (D-VA). We also had the opportunity to meet with Senator Tester directly to discuss the results presented here.

Based on the those results, on February 2, 2011, Senators Kerry, Tester, Shaheen, and Lieberman (I-CT) sent letters to administrators of the Environmental Protection Agency (EPA) and the Small Business Administration (SBA) asking for a Memo of Understanding between the agencies to maximize the impact of federal energy efficiency programs on small businesses.

The Road Ahead

As with all public policy decisions, there is no clear path ahead to unilaterally spur energy efficiency among small businesses via federal programs. Nevertheless, we believe this study provides insight on the energy habits of small businesses that policymakers must consider in order to best serve these businesses. Our study indicates that small business owners are ill informed about federal energy efficiency programs. Improving communication and access to these programs for small business owners could produce many benefits for our economy, our environment and our country.

References:

(1) Kobe, K. (2007). The Small Business Share of GDP, 1998-2004. Washington, DC: SBA Office of Advocacy.

(2) Bollman, A. (2008). Characterization and Analysis of Small Business Energy Costs. Washington, DC: SBA Small Business Office of Advocacy.

(3) Hanley, N., McGregor, P.G., Swales, J.K., and Turner, K. (2009) Do increases in energy efficiency improve environmental quality and sustainability?, Ecological Economics, 68: 692-709.

(4) DSIRE. (2010, June 9). Federal Incentives/Policies for Renewables & Efficiency. Retrieved April 10, 2011, from DSIRE: http://www.dsireusa.org/incentives/incentive.cfm?Incentive_Code=US02F

(5) ENERGY STAR. (n.d.). ENERGY STAR for Small Business. Retrieved April 11, 2011, from ENERGY STAR Web site: http://www.energystar.gov/index.cfm?c=small_business.sb_index

(6) Payne, Christopher Todd. (2006). Energy Consumption Behavior in the Commercial Sector: An Ethnographic Analysis of Utility Bill Information and Customer Comprehension in the Workplace (Doctoral Dissertation). Retrieved from ProQuest Dissertations and Theses Database. (3220742).

Contributors' Biographies:

William Markow, Victoria Adams, Daniel Green, and Gregory Bucci are undergraduate students at Bentley University in Waltham, Masachusetts. David Szymanski, Ph.D., is an Assistant Professor in the Department of Natural and Applied Sciences at Bentley and advised the students on this project. This research was the focus of an undergraduate course taught by Dr. Szymanski on federal environmental and natural resource policy. The authors would like to thank Carol Werner and Ellen Vaughan at the Environmental and Energy Study Institute (EESI), Dr. Helen Meldrum at Bentley University and all the small business owners who took part in our study. For further correspondence, please contact David Szymanski at dszymanski@bentley.edu.

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