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Look At All Those $20 Bills Just Lying Around...

Are there a bunch of companies out there that could lower their greenhouse-gas emissions at negative cost—that is, they'd actually make money? There was a small blog debate about this last week, with Brookings economist Ted Gayer arguing that it's unlikely there are lots of firms just ignorantly passing up profits like this. And yet, as The Wall Street Journal reports today, there really do seem to be a lot of firms throwing away money by using energy inefficiently:

Consider the lesson of Morgan Stanley’s trading floors. At its global headquarters in Times Square, Morgan Stanley kept its trading floors at a nice temperature 24 hours a day, five days a week. Even at 3 a.m. Why push so much heat in during the winter—or cool air in the summer—in the middle of the night?

That was one of the questions posed by EnerNOC Inc., a Boston-based darling of the energy efficiency industry, after it began monitoring the 42-story building. Another finding: Morgan Stanley, which owns the building and occupies somewhat more than half of it, was keeping the elevator machinery rooms and other mechanical spaces as cool as the corporate suite. And the bathroom fans were running 24/7.

In all, EnerNOC said it found about $100,000 in savings for Morgan Stanley last year. (The Wall Street firm posted a $729 million profit in the first three quarters of 2009, so the energy savings are not a make or break figure.)

Morgan Stanley has “definitely recouped all of their investment,” says Tim Healy, EnerNOC’s chief executive. “They were ahead of the game within months.” Since he’s selling monitoring – not expensive new lighting or higher-efficiency furnaces – it was a relatively low upfront cost. (Morgan Stanley confirmed EnerNOC’s account of EnerNOC’s work and the savings uncovered.)

The reason Morgan Stanley didn't notice how much energy it was wasting, it seems, is because $100,000 was a (relative) drop in the bucket. The company wasn't behaving irrationally—it's just that those savings weren't worth a lot of extra effort. But as carbon concerns have become more prominent, firms like EnerNoc are popping up and making it easier for the Morgan Stanleys of the world to cut that waste. Now, if we had a cap or tax on carbon, it's reasonable to expect that you'd see even more attention paid to the issue, even more EnerNOCs popping up, and even more stories like the one above. As Jon Chait pointed out in his response to Gayer, one of the biggest impacts cap-and-trade could have is the simple signaling function—you'd just see companies and CEOs pay a lot more attention to the issue, which would make a galaxy of difference.

I'd just add, though, that increased attention isn't always enough to get rid of waste. Take, for instance, renters. A renter might notice that his windows are leaky and the refrigerator is old and decrepit—and that all this waste is hell on the monthly electric bill—but he's not going to caulk the windows for a place he'll move out of in a few years. And the landlord, meanwhile, isn't paying the energy bill, so why should he buy a new fridge? No one's behaving irrationally here—it's just that the incentives don't align in favor of efficiency. And a price on emissions wouldn't necessarily fix this. That's why, in some cases, there's a rationale for well-designed regulations in addition to a carbon cap.

(Flickr photo credit: krisjaus)