DEI in C&I: Untapped Opportunities

As readers of this blog likely understand, decarbonizing buildings and improving their energy efficiency at the scale needed to mitigate the effects of climate change will require tremendous levels of investment. To ensure that investments are made equitably, disadvantaged communities must be prioritized. With this in mind, diversity, equity, and inclusion (DEI) has become an important concept in energy efficiency program implementation and evaluation in recent years. However, most DEI focus has been on the residential sector (particularly low-income households), with the commercial and industrial sector receiving far less attention. Let’s dive into how DEI concepts fit into non-residential utility programs and the many benefits they can bring.

Refresher

Focusing on equity in energy is important for innumerable reasons, but they can be grouped into backward and forward-looking reasons. As NEEP states, “A history of environmental racism and inequitable decision-making have led to marginalized communities bearing the largest impacts of the fossil fuel economy.” At the same time, these communities are also currently not positioned to take part in the benefits of a low-carbon transition in the same way as other communities. Ultimately, climate change has not and will not impact all communities equally. It will require a deliberate effort to ensure that frontline and underserved communities also benefit from the transition to cleaner sources of energy.

Recently, there have been efforts at both the state and federal level to stipulate the level of investments targeting disadvantaged communities (DACs). For example, as part of the federal Justice40 initiative, 40% of the overall benefits of investments, including investments in clean energy and energy efficiency among others, are required to go to disadvantaged communities. Other states have similar requirements. The Department of Energy has eight policy priorities to guide their implementation of Justice40, including decreasing the energy burden in DACs and increasing the parity in clean energy technology and adoption in DACs.

So what are disadvantaged communities? This term is used in California, New York, and elsewhere, while other states use similar terms such as high impact communities, overburdened communities, marginalized communities, etc. At the federal level, disadvantaged communities are defined either by geography (e.g., census tract) or by common condition (a geographically dispersed set of individuals). Geographic areas would need to meet thresholds for environmental, climate, or socioeconomic burdens, as mapped in the Climate and Economic Justice Screening Tool. Examples of a common condition would be households with high energy burdens, those with low or moderate income, communities of color, and households with low English proficiencies.

Focusing on DEI Impacts in the C&I Sector

Energy efficiency programs commonly identify and target priority populations in the residential sector, such as low or moderate income households and those with high energy burdens. However, much less attention is given to the DEI impacts in non-residential segments.

One common metric used by utilities is the number of implementation contracts or share of awarded contract value given to certified minority-owned, women-owned, and veteran-owned businesses. Setting metrics like these can help utilities increase representation of diverse businesses in energy efficiency programs.[1]

In addition to increasing the representation of the different businesses implementing programs, utilities can also improve the diversity and equity of the businesses participating in the programs. For example, programs can quantify and then improve the distribution of savings across customer usage categories and business segments so that smaller businesses and those in hard-to-reach segments receive similar attention as more common targets. Programs can also focus on older buildings which are more likely to have inefficient building envelopes and HVAC systems and may have the presence of toxic substances like asbestos or lead. Utilities can also look to improve participation in disadvantaged communities, where the bill savings and non-energy benefits may have outsized impacts.

Why is this so important? First, energy efficiency programs create jobs, directly and indirectly, as their economic impacts spread through the economy. Second, improving energy efficiency in businesses reduces their cost of operations which helps them stay in business and hopefully grow. Creating jobs and strengthening businesses in disadvantaged communities helps build community wealth.[2] Second, energy efficiency and electrification reduces pollution (carbon and other types) and improves air quality, leading to better health outcomes in these communities. Because polluting facilities are disproportionally sited in disadvantaged communities[3], improving the energy efficiency of businesses in these areas can have a substantial impact on local health.

Because energy efficiency programs have focused much less on C&I DEI impacts than residential impacts, there are still some issues that need to be further investigated. For example, it may not always be appropriate to simply target businesses located in disadvantaged geographic areas. Some businesses (e.g., national franchises) in those locations may not need support in the way a “mom and pop” store might. Additionally, we can only target what we can measure and identify. Some programs only define disadvantaged communities by their demographics or income levels, not by their risk of climate change impacts (e.g., floods and fires) or their proximity to environmental hazards. Fortunately, the implementation of the Justice40 initiative can help bring those aspects into the discussion.

Ultimately, as with the residential sector, focusing on DEI in the non-residential sector requires forethought and differentiation. Programs cannot just track where spending and savings occur. Instead, to truly diversify the impacts of non-residential energy efficiency programs, utilities need to understand the barriers holding some customers back. They need to identify target customers and design programs that proactively meets their needs. Doing so will result in the wide-ranging benefits of energy efficiency and electrification being spread to the people who may most need them.

[1] One area to watch is the inclusion of diverse businesses on teams simply as intermediaries for other subcontractors to meet diversity spend targets without performing the work. This arrangement goes against the spirit of the diversity targets.

[2] In addition to the quantity of jobs, it is also very important to track the quality of the jobs created.

[3] It could also be stated that communities become disadvantaged because of the presence of polluting facilities.