Energy Efficiency: Concept or Reality – Script

Bright Green Exhibit, Copenhagen, Dec 13th

Opening – Cover

Good afternoon. My name is Kent Anson, the Vice President of Global Energy for
Honeywell Building Solutions. Today, I want to talk about a subject that’s near
and dear to our hearts – energy efficiency.

Climate Change has been the prevailing theme here in this exhibit today, and is
also a topic of much debate in the UN Summit. The issues are real and but the
challenges can sometimes quite lofty. What I want to focus on today is the
concept of energy efficiency and why we, at Honeywell, believe is one of the
most tangible ways of affecting change.

Slide 1 – Honeywell

Honeywell is a $36 billion U.S. dollar company with about 50% of our portfolio
delivering energy efficiency. If the U.S. and Europe just aggressively used
existing Honeywell technologies (nothing that we would have to invent, just
existing products and services), they could save 15-20% of current energy
consumption … 15-20%!

Honeywell has a wide portfolio from more efficient fuels temperature controls. A
lot of people here today are from different industries and different business types
so I’ll just highlight some of the innovative solutions that may make sense to you.

At the very basic level, energy efficiency is the appropriate management of

energy consumption.

One of the most popular thermostats of the early 1900s was developed by
Honeywell. Today, the programmable thermostat is one of the most accessible
ways that homeowners can reduce their energy usage by 25-30% while staying
comfortable.

If we’re talking about commercial sector, buildings account for nearly 40 percent
of all energy and 70 percent of electricity use. These are prime conservation
targets. Honeywell offers energy services and partner with businesses to reduce
energy levels. For example, our Energy Savings Performance Contracts (or
ESPCs) are a cornerstone of the Clinton Climate Initiative. We’ve implemented
one that involves 22 facilities at the Transport for London that cut costs by 760
000 pounds annually and reduce CO2 by an amount equivalent to 570 cars.
I’ll also highlight another example at the end of the presentation on the City of
Melbourne – which was the most recent CCI project.

In the Industrial sector, updated process control systems for any manufacturing
process facility can save up to 10% of energy costs.

That’s a lot of different ways to save energy. Cumulatively, that’s a lot of energy
being reduced on a global basis. While technologies may differ from region to
region, the overall forecasted savings is 15-20% for both the U.S. and Europe.

Slide 3 – Building Solutions

Like I mentioned before, buildings account for nearly 40 percent of all energy and
70 percent of electricity use. Commercial buildings generate and consume a
whole lot of energy. If you look into the future, 80% of the buildings we occupy in
2050 are standing today. Combined, you can see that commercial buildings are
a prime target for energy conservation.

There’s a growing trend worldwide to focus on making buildings “green” but how
does that help businesses? One example of Green Buildings making good
business sense is in Australia. Commercial buildings compete for tenants. But
now, tenants are looking for facilities with a high Green Star rating. Some
businesses even have that requirement etched in to their corporate objectives.
This in turn incentivizes building owners to invest into improving their facilities to
meet expectations.

But sometimes, buildings owners operate on allocated budgets for a fiscal year
and cannot afford the luxury of facility improvements. This is where services like
the Energy Savings Performance Contracts come in. The concept behind
performance contracts is simple: customers work with energy services
companies (ESCO), such as Honeywell, to plan improvements on their facility or
equipment with projected savings. The ESCO guarantees the savings which is
sufficient to match the loans of the capital improvements – so in essence,
customers do not need to find upfront cash to fund the improvement project as
the project is under-written by the ESCO.

In the current climate, our customers’ priorities have shifted from simply reducing
energy costs to embarking on all-encompassing sustainability and carbon
reduction programmes. We’ve developed innovative tools that are driving this
change, from Smart Grid and wireless connectivity solutions to integrated utility
plans and water management products.

One service that we’ve developed to adapt to this changing need is the
Greenhouse Gas (GHG) Emissions audit. Our team of experts work with the
customer to baseline the facility’s GHG emission and sets a strategy and process
for future carbon management. Having this data is the first – and most crucial –
step for any facility to achieve carbon neutrality.

There’s been a lot of progress in recent years. First, there is the widespread
influence of sustainability organisations such as the Dixon Sustainability Index
(DSI) and American College & University Presidents Climate Commitment
(ACUPCC). The DSI for example is a measurement framework for the
information and communication technologies (ICT) community and their
stakeholders. Its purpose is to allow the accurate, meaningful and auditable
assessment of the sustainability of an organisation’s ICT facility (be that an in-
house department or an external, third party supplied service), which can be
compared against peers, against national and international targets or used for
compliance with relevant standards and regulations.

There is also the work of NGOs and visibility generated by groups such as the
US Conference of Mayors or even the climate change initiatives of university and
college presidents. Lastly, there are building standards such as NABERS and
Green Star in Australia and Energy Star and LEED in the US that have
dramatically boosted public awareness.

Slide 4 - Opportunities & Challenges

The world is ready for a change.

Economically, we have had Governments across the globe faced by a tidal wave
of the deepest financial recession since the 1930s. The banking and finance
system on the edge of an abyss.

As a result, debt levels have been increasing and income levels decreasing.

On a social context, climate change remains a threat to the whole world.

Delaying the move to a low carbon economy is unacceptable and in fact current
efforts need stepping up. This is because energy demand is increasing -
especially as we move out of the current recession.

And energy prices will increase not only from this demand but also from our
ageing supply infrastructures and political instability threatening future energy
supply security.

The good news is that there is global agreement on the need to reduce carbon
emissions to combat the effects of climate change and this is being implemented
at a local level via new legislation.
But despite current actions, a new report has forecast that that the EU will fall
short of its 2020 target to reduce energy consumption levels by 20% and will only
achieve 11%. This is why we need to step up our efforts.

Today, collectively Europe represents 17% of total global energy consumption.

More than half of European energy consumption takes place in the developed
countries of North Western Europe. And we need to curb this demand because
the European Commission estimates that European Countries currently waste
AT LEAST 20% of the energy they use.

And with buildings being the biggest single emitter of carbon emissions,
incredibly, our inefficient and poorly used buildings waste €270 billion every year
at current energy prices – mostly through a lack of basic energy efficiency
measures and poor energy efficiency habits by the occupants.

Whilst the construction industry is struggling at the moment, energy demand in

this sector is still predicted to grow by 1.2% per annum and in the absence of
reduction measures, will actually increase 53% on a compound basis by 2030.

So, where should you focus your efforts? Where can the biggest impact be made
to achieve these targets?

Supply-side solutions that replace high carbon emitting power generation with
clean and renewable solutions and making energy generation plant and
equipment as efficient as possible - both in design and operation – will of course
contribute to mitigating high energy costs & carbon emissions.

But, what if you didn’t need the energy in the first place?

The International Energy Agency, the IEA, estimates that for every Euro spent
reducing energy demand, two Euros of investment in new energy supply plant
and infrastructure is avoided.

But the problem with demand side energy efficiency is that with a wind turbine
you can see it, you can touch it and you can see the blades turning and
generating energy. Whilst energy efficiency improvements on an individual basis
tend to be small and fragmented.

As a result, demand side energy efficiency has been called the invisible solution -
often the least understood and its contribution often goes unrecognised. New
energy efficient lamps still light the office just as the inefficient ones did.

But as we have seen, addressing the demand side can have a major impact.
Collectively the improvements can make a huge difference and the solutions
exist today.
Slide 5 – So Why Aren’t We?

The technologies exist and are available to enable energy efficiency. The need is
there. So how come not everyone is using it today? I’ll try to frame this in six
main trends that Honeywell sees.

First impediment is Consumer Behaviour.

Consumers are also called “voters.” They act as individuals and for the same
reason they don’t all vote, there’s oftentimes a feeling that their personal
behavior won’t make that much of a difference. The first cost of any purchase still
generally means more to them than any projected energy savings. Despite how
they respond to surveys, when it’s their money they will consider their personal
lifestyle first. They won’t be responsive if it means reducing their standard of
living.

The second factor is the Financial Consideration.

companies generally invest using a criterion of a one-year payback meaning

whatever the first cost amount, it needs to be recovered in savings during the first
full year after implementation. Most energy savings projects, even when oil was
$150 a barrel, fell into the 3 year payback range. Still a good investment, but
below the one-year payback threshold. With the huge installed base of buildings
that needs to be retrofitted, that’s a big hurdle.

The third.. Building Owners.

In many buildings the benefit of a retrofit accrues to the condo owner or

apartment renter and not to the building owner who would have to pay for the
equipment.

The fourth is Government Inertia.

This is the inertia that exists even within Government to do something about their
own facilities, given all the other demands on their time. For example, the U.S.
has issued 3 separate Executive Orders in 1994, 1999, and 2007 requiring
significant energy use reductions in federal buildings with some result … but it is
not until now they are finally getting traction.

The fifth is Utility Companies.

Utilities are in the business of selling more electricity, not less. And more power
is generally needed to support the growth in regional, state, or country
economies needed to drive increased standards of living. They have little ability
to increase revenue or earnings by supporting growth through energy efficiency.

The last is the Accounting for Energy Savings Performance Contracts.

The nature of ESPCs requires private companies to count it as debt on their

balance sheets, making any CFO or CEO more reluctant to do it. It doesn’t apply
to Government owned facilities who generally use cash based accounting, so
ESPCs are more prevalent in the Government sector.

Slide 6 – Seven Steps Towards Energy Efficiency

The challenges are massive, but energy efficiency is still achievable. We’ve
identified SEVEN key measures.

The First… is a recognition that we have to achieve BOTH energy efficiency

AND economic growth. Achieving energy efficiency by telling people they have to
live “less well” than they did or that their children won’t have the prospect of a
better life than they did is just unsustainable. Increased standards of living are
driven by increases in productivity. It requires more output per cost input. It
means products that deliver energy efficiency while improving people’s lives.
Success comes from achieving two seemingly competing tasks at the same time.
In this case, energy efficiency while also achieving the growth and productivity
needed to improve standards of living. And economic growth will require power.

The Second … human nature requires both sticks and carrots. We can never
rely on just one of those. Another way to say it, is it requires mandates and
incentives. And another, is to call it Cap and Trade. It needs to be reasonably
rigorous of course. But it needs to be done soon. The longer Government waits,
the longer companies sit on the sidelines waiting to see what’s going to happen
so they don’t get caught up on the wrong side of legislation.

The Third … is to make economic and energy security more a part of the
discussion. Using less energy reduces economic risk AND helps the
environment. With economic recovery, oil and gas prices are very likely to go up
again, imperiling that same recovery. Another “squeeze” is very likely coming.
Given the historic lack of investment for a variety of reasons, supply has not
changed much. And enough of that supply is in relatively unstable parts of the
world, meaning that small disruptions can have disastrous consequences. I’m not
suggesting an “us against them” mentality but rather a recognition and discussion
of the facts.

The Fourth … that Government needs to stay technology neutral whenever

possible. Picking winners based on what we know today is a loser’s game. It
doesn’t harness the ingenuity and creativity of the human spirit. It doesn’t
harness the strengths of capitalism or the inevitability of creative destruction. We
should pick outcomes desired and not prescribe technologies

The Fifth … find a way to incentivize utilities for what’s been termed
“Negawatts.” Rewarding utilities for supporting economic growth while reducing
the energy required to achieve it. The Economist ran an article a few months
back about California’s experiment with it. I wouldn’t say the concept has been
perfected yet but I would say it has promise.

The Sixth … consider creation of an E-ARPA (Energy Advanced Research

Projects Agency) modeled on the DARPA organization used in the US to support
Defense Department technologies. They effectively partner with industry in a
highly focused and relatively non-bureaucratic way (which is always a danger of
course) to develop new products and technologies that have greatly benefited
the Department.

The Seventh … is to not let the “perfect” be the enemy of the “good.” A 20%
reduction, rigorously applied and enforced, that actually happens and supports
growth is infinitely preferable to a 30% reduction that never gets there. It’s
important to just get started.

Slide 9…Case Study: CCI Melbourne

I mentioned the Clinton Climate Initiative in my earlier slides.

The Clinton Climate Initiative (CCI) is a program of the William J. Clinton

Foundation that was launched in 2007 to help tackle climate change by
improving building efficiency. Both the City of Melbourne and Honeywell are part
of the original signatory members.

The program included a thorough audit of Melbourne’s 13 council buildings.

Honeywell conducted an analysis of the council buildings to identify areas for
energy efficiency improvements and retrofits. The project was then scoped out to
include improvements to HVAC systems and building controls, lighting retrofits,
and solar pool heating system. Water usage improvements included low flow
plumbing fixtures, rainwater harvesting technologies and gas and water &
electricity metering.

The work is expected to save Council around A$190,000 in annual energy costs.
And because the program was funding from energy savings, which are
guaranteed by Honeywell through a 10-year performance contract, the
improvements will not adversely impact operating budgets or require additional
taxpayer funding.
In addition to reducing energy costs, the measures will also have significant
environmental impact. Honeywell expects the retrofit work will cut GHG emissions
by 1,560 tonnes — equivalent to removing 348 cars from the road. Additionally,
the potential savings in water consumption could equal the amount of water used
to fill 52 Olympic-sized swimming pools – that’s approximately 11,791 kilolitres.

The importance of this project is two folds: it demonstrates a tangible solution to

energy efficiency. All you need to do is to partner with an energy services
company to audit your facility and plan the changes. Financially, you can look at
options such as ESPC to help you fund the projects.

The second benefit is that whether individually or cumulatively, energy efficiency

helps contribute to reversing the effect of climate change. The retrofit work done
for the CCI Melbourne project will help the city achieve its “Zero-Net Emissions
2020” goal.

Slide 10 – Saskerco

Here’s another example from the industrial sector.

Saskferco is one of the largest producers of granular urea, urea ammonium

nitrate and anhydrous ammonia in North America. It is now owned by Yara,
which is the world’s largest supplier of crop nutrients with sales to more than 120
countries, generating €59 bil in annual revenues.

In this example, Saskferco Products needed to looked at their nitric acid plant in
Canada. The issue was meeting the tight requirements for emission of
greenhouse gasses at the back end of the plant, especially NOx and methane.
The undesired gasses were burned in a combustor and then reduced across a
catalyst to produce Nitrogen, CO2 and water.

The undesirable gasses could easily be chemically reduced and the emission
standards be met, but the easiest way to do this was to over-burn the stream.
This consumed more energy and also consumed some of the desired products.
The effect of the “easy” compliance was to reduce the overall plant production
capacity in order to assure compliance with environmental regulation.

The Honeywell Profit Controller applications enabled the nitric acid plant to
produce at capacity while maintaining control of emissions and at the same time
reducing the energy consumed in the combustor. The methane emissions were
reduced by 25%, and fuel consumption was decreased by 5%, while plant
production increased by 3%, and all with greater stability. The project achieved a
net decrease in energy consumption and an increase in plant capacity, while
maintaining environmental compliance. By all accounts this was a most valuable
improvement in plant operations.
Slide 11 – Walking the Talk

Honeywell is working with customers to meet demand for the 2020 EU mandate that
all buildings have high energy-saving standards and be powered to a large extent by
renewable energy. Honeywell is also helping public authorities to meet their earlier
compliance deadline of 2018.

We also continue to work with the Clinton Climate Initiative (CCI) to drive global
Energy Efficiency Building Retrofit Program. This partnership extends also to the
leading cities such as London, Melbourne and Seoul whom we have worked with
energy efficiency projects.

Lastly, Honeywell as a company also pledges to reduce our greenhouse gas

emissions by 30% and increase our energy efficiency by 20% by 2012.

Feel free to stay behind, or stop by our booth (10A) if you have specific questions
on energy efficiency.

Thank you.