Are you Throwing Money Away By Following the “2-Year Payback” Rule?: Close the Efficiency Gap: Use Profits to Drive the Capture of Value

Abstract

This article suggests that profitable energy efficiency measures are often foregone due to the internal structure of most American corporations, in which energy functions are managed by cost centers rather than profit centers. This limits access to capital and fosters use of financial decision rules such as the “2-year payback” criterion that lead to suboptimal investment. The authors propose that corporations restructure their operations so that energy functions are managed by profit centers that can implement energy efficiency measures in other business units, realize a profit, and return it to their parent company.