Written by Gianna Maceda, ICIC
President Obama recently made waves by taking executive action on climate change. Committed to reducing carbon emissions of power plants by 30% from 2005 levels by 2030, the policy has sparked both zealous support and backlash, with criticism centered on its potential economic effects. Climate change has increasingly turned into an economic question in recent years, as efforts to reduce emissions could have large effects on industries and, of special interest to ICIC, urban economies where emissions are concentrated. Here at ICIC, we have the privilege of working with some of the nation’s fastest-growing urban businesses through the Inner City 100. While firms in the service sector have historically been well-represented on the Inner City 100 and continue to be prominent on the list, lists in recent years have seen a rise in the numbers of manufacturing and environmental firms. Firms in these two sectors provide a snapshot of potential regulatory effects as the EPA rules go into affect.
Projected rise in energy costs poses threat to manufacturers
Facing a projected rise in energy costs, leaders in the manufacturing industry have expressed concern that the new policy will eliminate their competitive edge in the global economy. The United States has seen a resurgence in the manufacturing industry in recent years, an effect that has rippled through its inner cities: whereas manufacturers made up 5% of the Inner City 100 in 2005, they comprised 17% of the 2013 list. Richard Marden, founder of 2013 Inner City 100 winner OriGen Biomedical, has cited the financial challenges of manufacturing in the US. OriGen, a medical device manufacturer, buys 95% of its materials from US based companies. Marden admitted that manufacturing in the US costs more than overseas, but championed product quality and streamlined delivery processes as benefits that offset the higher production costs. Still, the new climate policy could augment energy costs for American inner city manufacturers, particularly those in high emission states like Great Northern Building Products, another 2013 Inner City 100 winner, which is based in Kentucky. In light of the additional financial burden, manufacturers will need to find ways to cut energy costs, such as evaluating and restructuring their energy usage for better efficiency or innovating their product lines through the development and use of new technologies. Fortunately, the number and prominence of inner city environmental and energy consulting firms services has grown as well, making program evaluation services more readily available.
Opportunity for growth of research and program evaluation firms
The Inner City 100 has seen a notable increase in green businesses in recent years, with 18 such firms represented on the 2013 list. These companies spanned a variety of sectors, offering services ranging from installation of solar energy panels to research and program evaluation to environmental remediation. With the need for energy- and cost-efficient strategies due to the new policy’s regulations on emissions by state and projected rising energy prices, firms that offer program and evaluation services are in very favorable positions to grow. Inner City 100 winner from 2012-2013, Research Into Action, provides an example of how the new EPA regulations might actually fuel the growth of a segment of firms in the broader cluster. The Portland-based firm offers program evaluation and market research for utility and energy firms, governmental agencies, and NGOs, with most of its clients located in New York City. Founder and CEO Jane Peters cites government policies that favor state government energy efficiency and renewable energy as a key factor in Research Into Action’s growth and success. She estimates that the market for research and evaluation firms is growing at 5-15% a year. President Obama’s policy move will no doubt contribute to the growth of this firm and others in its market, as state governments seek to design efficient and affordable ways to reduce carbon emissions.
If the experience of Inner City 100 firms is any indication, President Obama’s new climate policy presents both opportunities and challenges for American companies, depending on their industry. History provides examples that legitimize arguments on both sides of the current debate, as supporters can cite innovation and new technologies born out of past emission regulations as catalysts of economic growth, and critics can justifiably cite cost and employment concerns given the fragile state of the US economy. With the deadline for delivery of state emission limitation plans still two years away and the overall deadline to cut emissions not until 2030, it is too soon to tell what the ultimate economic and environmental impact of the new regulations may be. In the meantime, we can look to some of the nation’s most prominent urban CEOs for insight on how to best position firms to grow and succeed amidst this economic uncertainty.