How is this CAP going to impact my constituents? Jurisdictions who are in the process of adopting or updating their climate action plans (CAPs) are concerned with more just the budgetary impacts and overall cost-effectiveness of CAP measures. There is a great deal of interest in understanding who will be directly impacted by a measure and how. In a previous post, I discussed EPIC’s benefit-cost analysis (BCA) framework for CAPs. This post will address the second of the two questions asked in a BCA: what are the financial impacts to those who participate in CAP measure activities? It will discuss who the participants are in CAP measures, how to identify them and their respective benefits and/or costs, and what results are best to show.
Who are the Participants?
Participants are groups of individuals (residents, businesses, commuters, etc.) who actively engage in an activity defined in a CAP measure that results in greenhouse gas (GHG) reductions. There are often numerous participants associated with CAP implementation and, depending on the individual CAP measure, a single measure can have multiple participants each with a distinct set of benefits and/or costs. The following presents examples of how simple or complex the group of participants can be for a measure.
On the simpler side are measure’s with one group of participants who are engaging in the activity defined in the CAP measure and there is little variance in how that activity is carried out. Consider a measure to plant trees on city-owned property (e.g., rights of way and parks; Figure 1) to expand a jurisdiction’s urban forest. In this example, the jurisdiction is the sole participant who would purchase, plant, and maintain the trees.
Getting a bit more complex, consider a measure in which a jurisdiction constructs additional bike lanes to expand its bicycle network (Figure 2). On the surface, this type of activity would seem similar to the urban forestry example above since the jurisdiction is responsible for the construction of new bike lanes. However, this measure is a bit more nuanced; in order to achieve the GHG reductions identified in the CAP, more commuters must switch their mode of transportation from car to bike and ride on those new bicycle lanes. This results in two distinct transactions—the jurisdiction paying to construct and maintain the bike lanes and the commuter who receives gas reduction benefits from the mode shift.
Still, measures can be even more complex. This is especially true for measures that are broadly defined (e.g., include both residential and commercial requirements) and/or have an activity that can be fulfilled in a number of ways. A measure that encourages the installation of residential solar photovoltaic (PV) systems is a prime example (Figure 3). At a higher level, participants can be disaggregated according to construction type (new construction vs. existing) since the costs (and potential rebates) associated with PV systems can vary significantly between the two groups. In the case of new construction, the participant group can be further separated out between homeowners and developers. While it might not always be feasible to distinguish whether a homeowner or developer will be experiencing the upfront cost, it is important to acknowledge this distinction exists. Finally, participants can further be categorized according to the transaction type (e.g., are they purchasing the system outright or entering into a power purchase agreement with a third party).
What Benefits and Costs are Included?
The list of possible considerations to assist in identifying (1) all measure participants and (2) their respective benefits and costs can be daunting, especially when you consider how many measures are included in a typical CAP and the breadth of activities which those measures cover. Here are a few general questions to ask to better understand a measure’s participants:
- What is the actual activity required to achieve the GHG reductions and what is necessary to complete that activity?
- Are there any upfront costs for purchase/installation?
- Are there any ongoing maintenance costs and, if so, at what frequency are they incurred (e.g., annually, biannually)?
- Does the activity reduce consumption (electricity, natural gas, water, fuel, etc.)?
- What rebates and incentives are available?
- What rate schedules apply to participant groups?
- What type of transaction is involved (e.g., purchase or lease)?
It is important to note that the participant perspective includes only direct benefits and costs. All indirect benefits and costs (externalities), such as increased housing values and improved air quality, are considered when analyzing the societal perspective in a CAP BCA.
Looking at the Impacts
Once all the right questions have been asked and the appropriate data collected, several metrics can be calculated to assess the impacts of CAP measures on the various participants. Unlike the measure cost-effectiveness part of a BCA, there is more than one metric to calculate and more than one result for each measure. Here, the benefit-cost ratio (BCR), payback period, internal rate of return (IRR), and return on investment (ROI) can be provided to better understand participants’ financial impacts. In addition, results should be shown at the perspective level. Aggregating all participant groups for a single measure can obscure results and detract from purpose of the analysis. For instance, in the PV system example above (Figure 3), there can be a marked difference between the benefits and costs experienced by those who purchase the PV system outright in contrast to a homeowner leasing the system from a third party and results for each should be presented (Figure 4).
While the dollar per metric ton of carbon dioxide equivalent ($/MT CO2e) and total GHGs reduced do not shed light on participant impacts, they can be helpful in providing additional context as it relates to the CAP.
CAP BCAs in Practice
EPIC has completed several analyses for jurisdictions in the San Diego region that evaluate the impacts of CAP measures on various participant groups, including County of San Diego and City of La Mesa.
This was the fifth in a series of posts about CAP cost analyses. Our final post in the series will identify common limitations and challenges currently faced when conducting CAP cost analyses and discuss ways to build upon the framework described here.