Late last year, California held the nation’s inaugural cap-and-trade auction, where greenhouse gas emission permits were sold in an effort to monetize and reduce carbon pollution. And just last month, new cap-and-trade regulations on large power and industrial plants officially went into effect.
Those events and the topic of greenhouse gas legislation in general have incited considerable debate about the adverse economic effect such laws could have on small businesses at a time of fiscal strain and uncertainty. The answer is: very little. In fact, small businesses have much to gain.
California’s global warming law, commonly known as Assembly Bill 32, was approved in 2006 and focuses on large polluters — oil refineries, big factories and power plants — not the local gas station or dry cleaner down the street. Much fuss has been made about increased costs to small businesses. However, any increased costs would come through energy prices and not from the new law, according to economic consulting firm The Brattle Group, which estimates electricity costs to rise about 2.5 cents per kilowatt-hour per year.
And because the vast majority of small businesses in California are not energy-intensive (the average small business spends less than 1.5 percent of revenues on energy-related costs), any increase in energy prices will be modest. It’s important to note, also, that a national Small Business Majority poll released last year found 56 percent of small business owners support the regulation of greenhouse gas emissions, even if it means a possible increase in utility prices.
The real small-business skinny on AB 32 is that the law will create far more opportunities than problems. California’s small businesses will be able to take advantage of the increased investments, innovation and energy efficiency savings that the law will generate. That will translate into more demand for energy-efficient products and services, which will grow businesses and create jobs.
AB 32’s standards to reduce carbon pollution will fuel demand for and increase investment in energy-efficient goods and services, generating new prospects for the small businesses that provide them.
Michael Davis, owner of US Pure Water and The Water Store in Novato, has seen firsthand how increased environmental standards can create opportunities for small businesses like his. Davis’s company’s mission is to get people off bottled water and onto a more ecofriendly and economical water filtration and purification system. When he got a contract with the county of San Francisco to replace bottled water with water purification systems, he thought he’d have orders coming out of his ears. But city and county offices continued buying bottled water instead of purchasing systems from Davis, despite his contract.
“(The contract) was just a behind-the-scenes decision with no real movement,” Davis says. “No one placed orders for bottleless water because the purchasers for the city offices were not well enough aware of the cost savings, convenience and ecological advantages to bottleless water systems. But then the mayor issued an executive order, and the orders started rolling in. It would have taken years of educating the purchasers otherwise.”
AB 32 provides the same type of catalyst. By requiring big companies to become more efficient, it gives more opportunities to the little ones that, more often than not, are suppliers to their larger counterparts.
What’s more, an analysis conducted by the California Air Resources Board (CARB) concluded that the small-business service sector, which accounts for nearly 30 percent of the state’s total employment and 50 percent of all small business jobs, will see an increase of $4.6 billion more in revenue by 2020 and 15,000 jobs will be added. Additionally, the financial benefit of the law translates to an extra $1,115 per employee per year. These benefits are a result of requirements in the law that spur greater energy and fuel efficiency, CARB found.
Increased energy efficiency is good for the average consumer, too. CARB’s analysis estimated that expanded energy efficiency options will help increase Californians’ income by $2 billion annually, allowing them to spend more money on other local goods and services, often provided by small businesses.
But it’s not just clean energy-related businesses that can see opportunities from the law. AB 32 also creates incentives for more mainstream companies to “green” their operations — providing brand differentiation from competitors and garnering strong customer loyalty.
While AB 32 does not require small businesses to invest in energy efficiency improvements, it can provide opportunities for entrepreneurs that decide to make their businesses more sustainable. First, making investments in more efficient technologies will save businesses money on energy costs. And it will be easier than ever for small businesses to take advantage of these technologies thanks to the substantial resources included in the law devoted to helping them make improvements.
Second, increased consumer awareness of climate change spawned by the law likely will lead to increased demand for climate-conscious products and services — simultaneously creating opportunities for companies that successfully promote the “greener” aspects of their businesses.
The bottom line on cap-and-trade and AB 32: The only impact small businesses will see is the impact they create by becoming more energy efficient, by servicing larger businesses impacted by energy mandates or by differentiating themselves in the marketplace.
Small-business owners innovate to survive. It’s more than likely 2013 will see a host of small businesses doing just that.