WALTHAM, Mass.--Living off the grid to be in touch with nature may have once been the height of environmentalism, but urban areas are increasingly taking the lead on environmental issues.

A panel here at the TieCon East conference discussed "smart communities" in an attempt to define the term and whether it offers business opportunities for technology entrepreneurs. For the most part, panelists said forward-looking cities offer ways to test out new products, but the smart-community notion remains hazy in its definition because it covers so many areas.

There are many examples of cities that have made a priority of environmental sustainability and enacted a wide range of policies, such as building-efficiency programs or tree planting to capture storm water runoff. This week in Sao Paolo, Brazil, the C40, made up of many of the world's largest cities, published a report listing the strategies it has devised to mitigate the effects of climate change (PDF).

Boston University professor Nathan Phillips (on right, speaking) talks to students from a local school about monitoring carbon dioxide and the exchange of CO2 between trees and emitters, such as vehicles.

In the U.S., efforts have mostly touched on energy as well as waste and water, but food will increasingly be a consideration, said Galen Nelson, green tech business manager at the Boston Redevelopment Authority.

San Diego, for example, has a multiyear plan to improve sustainability, with the first wave around building an electric-vehicle charging infrastructure. The island of Maui in Hawaii, which relies heavily on imported diesel fuel for electricity, has a goal of converting to 40 percent renewable electricity by 2030.

For the most part, the technology for making smarter communities is available, but there are many regulatory, social, and financial challenges. For example, Nelson showed an image of the iconic Boston "triple decker"--a three-story, multifamily home--and said it could be retrofitted with improved recycling, smart meters to improve energy efficiency, solar power on the rooftop, and storm water recycling.

But installing these products doesn't always have a rapid financial payback, even though there are environmental benefits. Utilities, for example, can make the electricity grid more reliable and energy efficient by using information provided by smart meters, but investing in meters solely based on energy savings has proved difficult in many cases.

"The main challenge is that the traditional sense of payback generally doesn't meet the normal hurdle rates," said Jeff Connelly, the vice president of engineering at GE Water and Process Technologies.

Investments to improve energy efficiency in commercial buildings is an active area because the financial benefits are the most compelling, compared with residential buildings, said Alistair Pim, vice president of strategic alliances at Schneider Electric. GE is looking for companies that have low-energy water-purification members because energy can be about half the operating cost of water treatment plants, said Connelly.

But there's a lot more that can be done beyond efficiency. Boston has done maps measuring the solar potential of buildings, which has helped building owners quickly understand how solar can be used. It's even determined areas that are good candidates for distributed energy generation by using organic waste-fueled anaerobic digesters.

"It is fragmented, but these issues are not going away, so you have to play across a number of different fronts to stay contemporary with the issues," GE's Connelly said.

Ultimately, smart communities comes down to policies, and the lack of long-term federal policies to encourage alternatives to fossil fuels holds back progress, panelists said. "One of the big challenges is thinking big," said Boston's Nelson. "Fifty years ago we built the national highway system. 150 years ago it was the Erie Canal. Where is the drive to build the smart grid of tomorrow that will drive the economy, and who is going to pay for it"