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"Thank you to Professor Simons for her letter bringing this book (The Natural Advantage of Nations) to our attention as one that deserves to be read alongside Jarod Diamond's Collapse."
Readings (June 2005 Newsletter)





Introduction to Sustainable Development for Engineering and Built Environment Professionals


Unit 2 - Learning the Language

Lecture 5: Efficiency - Resource Productivity Improvement
         

Educational Aim
 

To demonstrate that efficiency – doing more with less for longer - is a positive first step towards sustainability. To introduce the concept of efficiency and explain how it leads to efficiency gains for firms, increased profitability and other benefits. To explain why efficiency on its own will not be enough to achieve sustainable development.


The topic of efficiency will be further developed in ‘Role of Engineering in Sustainable Development B’ and ‘The Role of Efficiency in Sustainable Development’, discussing in detail how to achieve sustainability benefits from efficiency through providing further checklists and further online resources to assist the engineer and designer.

Textbook Readings


Hargroves, K. and Smith, M.H. (2005) The Natural Advantage of Nations: Business Opportunities, Innovation and Governance in the 21st Century, Earthscan, London:

  1. Chapter 6: Natural Advantage and the Firm. ‘Achieving Radical Resource Productivity’ Table 6.6 (1 page), p 99.


Hawken, P., Lovins, A. and Lovins, L.H. (1999) Natural Capitalism: Creating the Next Industrial Revolution, Earthscan, London, pp 11-14.


Learning Points

* 1. Global demand for energy and resources in the 21st century is forecast to significantly rise with fast growing economies like China already outstripping the USA in the consumption of many resource commodities. Achieving greater and greater levels of efficiency will be vital to ensuring long term sustainable prosperity for the global economy, especially when coupled with design and operations improvements. To achieve the goal of sustainable development the first step therefore is ‘to do more with less for longer’. Activities that are more efficient are those that provide the same or better product or service while using fewer inputs such as energy, water and materials.

 

* 2. Many resources humankind uses are non-renewable (fossil fuel, metals) and many other renewable resources are being used at unsustainable rates (freshwater, fish, forests). Given the very real possibility that we may be pushing ecological systems into collapse, we must reduce humanity’s environmental load on the planet by using these resources wisely and efficiently.

 

* 3. Many aspects of the current industrial-economic system that supply energy, water, transportation and materials are ecologically unsustainable. It will require significant investment to create sustainable and renewable energy and water infrastructure worldwide. Recycling plants will need to be built as well as factories which use less energy-intensive ways to create chemicals and materials. It defeats the purpose for nations to build wind and solar farms, for businesses and industry to invest in sustainable energy supply and water recycling, households to invest in solar hot water heaters and water tanks, if they then use these resources inefficiently, especially in light of the fact that many people do not even have access to such services.

 

* 4. Since many aspects of the transition to sustainability will involve investments it is wise to invest in those environmental strategies that ensure the fastest return on investment. Doing so will ensure that the greatest environmental outcomes will be achieved for each dollar spent over time. Utilising resources and energy more efficiently is often the most cost effective way for companies, organisations, governments, schools, and households to begin their journey to sustainability.

 

* 5. Business has already demonstrated the environmental and financial benefits of efficiency. Efficiency improvements leads to companies achieving lower capital and operating costs, increased yields, and reductions in resource and energy use.


* 6. The benefits from efficiency improvements can improve the competitive advantage of business. The best evidence of significant efficiency opportunities for most companies is shown by the fact that six companies have achieved over US$1 billion dollars in savings through energy efficiency alone while reducing greenhouse gas permissions over 60 percent.
[1] Additional benefits of pursuing efficiencies include the following:

  • Insulate businesses from commodity price hikes and other shocks.

  • Efficiency initiatives have been shown to unleash the creativity of staff.

  • Efficiency initiatives have been shown to help companies improve decision making processes.


* 7. The potential to achieve resource efficiency and cost savings exists because the current industrial production and consumption system is so wasteful. As Paul Hawken wrote in The Ecology of Commerce,
[2]Just 6 months after products have been bought, 99% of them have already become waste.’ There are numerous ways to ensure that resources are used more productively.

* 8. Efforts to increase energy and resource efficiency have an ancient history. The ancient Greeks utilised passive solar design of buildings to reduce the amount of heating required by buildings from wood fires. In the fields of ocean transportation, significant efficiencies in wind power were achieved before the first industrial revolution. Leonardo De Vinci admired the shape of dolphins which enabled them to carve through the ocean water so efficiently.


* 9. It is important to note that an efficiency saving is not the same as an energy, water or materials reduction. People assume that if a company makes its processes more energy efficient by 66 percent, or if in a household an inefficient light bulb is replaced by a 90 percent more efficient one then that will lead to a 66 percent and 90 percent reduction in energy respectively. Similarly people assume that if a family buys a hybrid car (approx 50 percent more efficient than a standard car) then they will use 50 percent less petrol. Unfortunately, it is not that simple.

  • In the book The Coal Question,[3] it showed that a greater than 66 percent efficiency improvement in the making of steel per unit amount of coal was followed in Scotland by a tenfold increase in total consumption of coal.

  • The consumer, now saving 90 percent electricity on their lighting bill may forget to turn the light off, and will not hesitate to leave it on for prolonged periods.

  • The family now only paying half as much for a litre of petrol may decide that they can afford to drive the car more, or drive it faster.


This is known as the ‘rebound effect’.

* 10. Without purposeful sustainability policies, and incentives for sustainability orientated behaviour change, efficiency can lead to rebound effects that lead to even greater resource consumption due to either making an industrial process much cheaper (leading to its greater global uptake) or removing the financial incentive for behaviour change.

 

Brief Background Information
 

The World Federation of Engineering Organisations in their 2001 Model Code of Ethics, calls on engineers to improve energy and materials efficiency, stating, [engineers should] strive to accomplish the beneficial objectives of their work with the lowest possible consumption of raw materials and energy and the lowest production of wastes and any kind of pollution. Global demand for energy and resources in the 21st century is forecast to significantly rise. This rapid growth in resource consumption is not only due to the increasing population, but also due to the rapid economic growth of China and India. In 2005, China’s growing economy consummed more grain, meat, coal and steel than the US and became the World’s leading consumer.[4] The US still consumes the most oil, however China is fast catching up and leads in the consumption of manufactured goods such as fertilizer, electronics, household appliances and personal computers. Achieving greater and greater levels of efficiency will be vital to ensuring long term sustainable prosperity for the global economy.

Engineers around the world understand that they have a tremendous responsibility in the implementation of sustainable development. Many forecasts indicate there will be an additional five billion people in the world by the middle of the 21st century. This requires more water, waste treatment systems, food production, energy, transportation systems, and manufacturing -- all of which requires engineers to participate in land planning, and to research, study, design, construct, and operate new and expanded facilities. This future ‘built environment’ must be developed while sustaining the natural resources of the world and enhancing the quality of life for all people.

World Federation of Engineering Organisations, 1997[5]


Efficiencies
One of the first uses of the word 'efficiency' in relation to sustainable development was by the World Business Council for Sustainable Development (WBCSD) in their 1992 publication 'Changing Course'. The term was used to seek to encapsulate the idea of using fewer resources and creating less waste and pollution while providing the same or better services. According to the WBCSD,[6]
efficiency entails the following:

  • A reduction in the material intensity of goods or services,

  • A reduction in the energy intensity of goods or services,

  • Reduced dispersion of toxic materials,

  • Improved recyclability,

  • Maximum use of renewable resources,

  • Increased durability of products, and

  • Greater service intensity of goods and services.


The 1992 Earth Summit endorsed ‘efficiency’ as a means for companies to implement Agenda 21 in the private sector. Stephan Schmidheiny, the inaugural honorary chairman of the World Business Council for Sustainable Development, said in 1996, "I predict that within a decade it is going to be next to impossible for a business to be competitive without also being 'efficient': adding more value to a good or service while using fewer resources and releasing less pollution." As Schmidheiny predicted, efficiency has been working its way into industry with extraordinary success. The number of corporations committing themselves to it continues to increase. Its famous three R’s (Reduce, Reuse, Recycle) are steadily gaining popularity in the home as well as the workplace. The trend stems in part from efficiency's economic benefits, which can be considerable.

Business Benefits of Efficiency
Companies need to find new ways to improve their competitive advantage, this can be done through activities that both reduce operational costs through greater efficiency and create innovative ways to deliver higher quality ‘greener’ products to differentiate them in the market and even command premium prices. There are many ways that effective environmental management can help firms to realise this, i.e. through process innovation (efficiencies), and product differentiation through ‘more efficient’ manufactured products (innovation). When profit margins are being squeezed efficiency savings can prevent companies going into the red. International carpet manufacturing giant Interface Ltd believes that its efficiency savings, now worth over $200 million per annum, were vital to ensuring that it survived the significant post 9-11 downturn in the US carpet market. According to research undertaken by The Climate Group, a UK based think tank, five multinational companies – Bayer, BT, Dupont, Norske Canada and IBM - have now all achieved 60 percent or more reductions in greenhouse gas emissions while saving in total over US$5 billion.[7]


Such efficiency savings, while seeming small relative to the overall costs of a business, can be equal to a company’s current profit margin.

Process benefits to reduce costs through eco-efficiencies

Product benefits to reduce costs and create product differentiation through eco-innovation

•  Material savings from better Whole System Design.

•  Increases in process yields and less downtime through designing-out waste and designing the plant and process to minimise maintenance and parts.

•  Better design to ensure that by-products and waste can be converted into valuable forms.

•  Greater resource productivity of inputs, energy, water and raw materials to reduce costs.

•  Reduced material storage and handling costs through 'just in time' management.

•  Improved OH&S.

•  Improvements in the quality of the product or service.

•  Higher quality, more consistent products.

•  Lower product costs (for instance, from material substitution and improved plant efficiencies).

•  Lower packaging costs.

•  More efficient resource use by products.

•  Safer products.

•  Lower net costs to customers of product disposal.

•  Higher product resale and scrap value.

•  Products that meet new consumer demands for environmental benefits.


Table 5.1. Benefits of eco-efficiencies and eco-innovation to a firm’s competitive advantage.
Source: Porter, M. and van der Linde, C. (1995)[8]


Several authors[9]
have studied the relationship between productivity and energy efficiency and found a direct relationship using different methodologies and datasets. Their research shows there are multiple benefits for companies implementing more efficient processes and products.

Efficiency improvements for companies leads to lower capital costs and operating costs, increased yields, and reductions in resource and energy use. Any industrial technology or process improvement will result in one or more of these beneficial outcomes. Some efficiency improvements may primarily be aimed at one goal, but also generally include beneficial impacts on other aspects of a production process. For instance, certain technologies that are identified as being ‘energy-efficient’ because they reduce the use of energy will bring a number of additional enhancements to the production process.

These improvements, including lower maintenance costs, increased production yield, safer working conditions, and many others, are collectively referred to as ‘efficiency benefits’ or ‘non-energy benefits’ because in addition to reducing energy, they all increase the efficiency of the firm. Key publications like Factor Four have highlighted the remarkable achievements already being seen when resource efficiency approaches are applied. In the book Factor Four the authors brought together the range of benefits and the business case reasons for resource efficiency:[10]

  1. Live better: Resource efficiency improves quality of life. Efficient lighting systems help people to see with less electricity, less toxins in products and food are healthier, more resource productive factories produce better goods, and healthier environments are created with more energy-efficient and cleaner buildings.

  2. Pollute and deplete less: Efficiency reduces waste and pollution, which is otherwise a resource out of place, and can contribute to solving significant global issues such as human-induced climate change through greenhouse gas emissions and water shortage.

  3. Make money: Resource efficiency is usually undertaken at a profit, as money is saved in two ways - by converting valuable resources into useful products and services (rather than non-useful waste) and by reducing the clean-up, remediation, transport, treatment, and disposal costs associated with the waste that is created.

  4. Harness markets and enlist business: Market forces combined with innovative policy structures and market mechanisms can drive resource efficiency, much of it can be driven by individual choice and business competition.

  5. Multiply use of scarce capital: The money saved with resource efficiency practices can be reinvested to solve further efficiency problems. For example, if a developing country invests in equipment to make energy-efficient light bulbs, it can provide the energy services at a tenth of the cost of building another power station.

  6. Increase security: Resource scarcity and competition can be the source of international conflict – oil, minerals, forests and water are resources vital to the functioning of a country, and access to such resources based in foreign countries can be a primary reason for war.

  7. Be equitable and have more employment: Resource efficiency activities can be the source of increasing employment – by reducing the amount of unproductive resource allocation, money can be saved and reinvested into more productive labour.


These ‘eco’ efficiencies have been so successful that many governments now have programs to assist industry develop efficiency strategies as part of their broad portfolio to become internationally competitive. As the Australian government wrote, ‘There is an ever increasing need for industry to address sustainability and energy issues cost effectively to enhance their domestic and international competitiveness.
[11] As a result of this understanding, governments are increasingly providing programs with online resources to help implement these changes in business, with everything from freely downloadable Environmental Management Systems[12] to databases on efficiency techniques for many industries.[13]

The Rebound Effect
Some argue that the ’rebound effect’ is common, that is, when a more efficient technology is introduced, lower costs often prompt people to increase their consumption of resources. Rebound effects could possibly negate many efficiency advances. Whether efficiencies lead to negative rebound effects or their opposite, known as positive amplification effects, is crucial to achieving sustainable development. In broad terms, there are two dimensions to the ‘rebound effect’:

The first type is technological/cultural rebound. Here, as a result of the application of an efficient technology, the level of service provided increases. At the extreme, this can lead to a situation where additional investment in more energy-intensive equipment occurs because of the increased technological capability. For example, the owner of a space-heated home may find that, when it is insulated, a space heater can heat most of the home, so they may then invest in a central heating unit (rather than a ducted one) in the belief that it will not cost too much more to run and the house will be heated throughout. The second type of rebound effect is economic rebound. In this case what happens is that the money saved for instance from saving energy (after the cost of the measure has been repaid), then flows through the economy, giving people more money to consume products and services, which may lead to additional energy use overall.

Many assume these rebound effects are significant but they don’t need to be. It is just as likely that positive environmental change will lead to people in their homes and workplaces undertaking more environmental initiatives, not less. If the money saved is spent on, for instance, a lower energy intensive activity (such as hiring a DVD or paying for cable TV), then there may actually be a savings amplification effect, as the level of indirect energy use in the economy will be reduced by the shift in expenditure, while the household will continue to use less energy due to the efficiency improvement.

If the money saved is invested in other energy saving measures then there is a larger amplification effect because they save even more. Furthermore, it is likely that widespread behaviour of this kind will influence the behaviour of manufacturers who are more likely to improve the efficiency of their products and services in order to maintain market share. The point of discussing these various possible outcomes of improving energy efficiency is to highlight the fact that they can vary from large rebound effects to large amplification effects. Policies, education and information can influence the outcome significantly. Driving aggressive mandatory energy efficiency standards with quite long payback periods can divert money towards investment in energy efficiency and away from other economic activity, reducing the rebound effect.

Changing the behaviour of product and service suppliers can also result in an ‘amplification effect’. Policies such as eco-taxes, ‘feebates’[14]
and Germany’s best available technology legislation[15] that have been covered in Chapter 8 of The Natural Advantage of Nations can do much to prevent negative rebound affects and instead in theory promote large amplification affects. In Chapter 11 of The Natural Advantage of Nations more mechanisms of government are presented that can help provide incentives for positive amplification effects to occur instead of negative rebound effects. In Chapter 21 of The Natural Advantage of Nations, Chris Ryan contributed an extensive framework on Sustainable Production and Consumption that provides a comprehensive program to address negative rebound effects and encourage amplification effects. In many ways simple behaviour changes and lifestyle choices offer the most cost effective ways to reduce greenhouse gas emissions. If people chose to walk to the shops rather than driving a car or turning off the lights they are not using at work this can significantly reduce greenhouse gas emissions while having no negative effect on well being or economic productivity.

 

Key References

- Australian Government Department of Industry, Tourism and Resources (n.d.) Energy Efficiency Best Practice Program, Available at http://www.industry.gov.au/. Accessed 3 January 2007.

- Department of Environment and Heritage (n.d.) Corporate Sustainability. Available at http://www.deh.gov.au/industry/corporate/eecp/index.html. Accessed 3 January 2007. This page offers over 155 Australian Case Studies of the Eco-Efficiencies/Cleaner Production benefits of applying aspects of environmental management systems.

- Department of Environment and Heritage (n.d.) Mining. Available at http://www.deh.gov.au/settlements/industry/minerals/index.html. Accessed 3 January 2007. This page offers Environmental Management guidelines and resources for the Mining Sector.

- DeSimone, L. and Popoff, F. (1996) Eco-Efficiency: the Business Link to Sustainable Development, MIT Press, Cambridge MA/London.

- Five Winds (2005) Eco-Efficiency Training Module, WBCSD, Geneva. Available at www.wbcsd.org/DocRoot/MRdaDUNiWNU4NZlWw9eM/ee_module.pdf. Accessed 3 January 2007.- Daly, H. (1999) Ecological Economics and the Ecology of Economics, Edward Elgar Publishing, UK.


- Hawken, P., Lovins, A.B. and Lovins, L.H. (1999) Natural Capitalism: Creating the Next Industrial Revolution, Earthscan, London.

– Chapter 1: The Next Industrial Revolution. Available at http://www.natcap.org/images/other/NCchapter1.pdf. Accessed 3 January 2007.

– Chapter 3: Waste Not. Available at http://www.natcap.org/images/other/NCchapter3.pdf. Accessed 3 January 2007.


- von Weizsäcker, E., Lovins, A.B. and Lovins, L.H. (1997) Factor 4: Doubling Wealth, Halving Resource Use, Earthscan, London, Chapter 1: Twenty Examples of Revolutionising Energy Productivity.

- WBCSD (1999) Eco-Efficiency: Creating More Value with Less Impact, WBCSD, Geneva. Accessed 3 January 2007.

- WBCSD (1999) Measuring Eco-Efficiency: A Guide to Reporting Company Performance, WBCSD, Geneva. Accessed 3 January 2007.

 
Key Words for Searching Online

Efficiency, World Business Council for Sustainable Development, Eco-Efficiency. Eco-efficiency Initiatives such as the European Eco-efficiency An initiative of the World Business Council for Sustainable Development, the Initiative (EEEI) European Partners for the Environment (EPE) and the European Commission for Enterprises to promote eco-efficiency Europe-wide. Details on its objectives, action areas and progress can be found on the EPE site by selecting ‘Resources’ then ‘Most Recent Objectives’. (www.epe.be/programmes/eeei/index.html)

 

[1] The Climate Group (2005) Carbon Down Profits Up. Available at www.theclimategroup.org/assets/Carbon_Down_Profit_Up.pdf. Accessed 3 January 2007. (Back)

[2] Hawken, P. (1993) The Ecology of Commerce, A Declaration of Sustainability, HarperCollins, NY. (Back)

[3] Jevons, S. (1865) The Coal Question, An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coal-Mines, McMillan and Co., London. (Back)

[4] Brown, L. (2005) China Replacing the United States as World's Leading Consumer, Earth Policy Institute, 16 February 2005. (Back)

[5] World Federation of Engineering Organisations (1997) The Engineer's Response to Sustainable Development, WFEO. (Back)

[6] Recently, the WBCSD has taken steps to extend its work on efficiency to specific sectors. Currently there are special projects within the cement, electric utilities, forestry, mining and mobility sectors. In 2001, 11 companies from six countries embarked on a project addressing sustainability issues in the electric utilities sector. In addition to the sectoral work, there are also several WBCSD projects on policy development and best practice, such as the European Efficiency Initiative. For additional information visit the WBCSD webpage at www.wbcsd.org. (Back)

[7] The Climate Group (2005) Carbon Down, Profits Up. Available at www.theclimategroup.org/. Accessed 3 January 2007. (Back)

[8] Porter, M.E. and van der Linde, C. (1995) 'Green and Competitive: Ending the Stalemate', Harvard Business Review , September-October, pp 121-134; Porter, M.E. and van der Linde, C. (1995) 'Toward a New Conception of the Environment-Competitiveness Relationship', Journal of Economic Perspectives, vol IX-4, Fall, pp 97-118. (Back)

[9] G.A. Boyd and J.X. Pang (2000) 'Estimating the linkage between energy efficiency and productivity', Energy Policy 28 5, pp 289-296; Kelly, H.C., Blair, P.D. and Gibbons, J.H. (1989) 'Energy use and productivity: current trends and policy implications', Ann. Rev. Energy 14, pp 321-352; US Department of Energy (1997) The interrelationship between environmental goals, efficiency improvement, and increased energy efficiency in integrated paper and steel plants, DOE/PO-0055, US Department of Energy, Office of Policy and International Affairs and Office of Energy Efficiency and Renewable Energy, Washington, D.C. (Back)


[10] Adapted from: von Weizsäcker, E., Lovins, A.B. and Lovins, H.L. (1997) Factor Four: Doubling Wealth, Halving Resource Use, Earthscan, London, Introduction: Seven Good Reasons for Resource Efficiency. (Back)


[11] Australian Government Department of Industry, Tourism and Resources n.d. Energy Efficiency Best Practice Program. Available at http://www.industry.gov.au/, search 'Energy Efficiency Best Practice Program'. Accessed 3 January 2007. (Back)


[12] Environmental Management Systems can be freely downloaded from the Australian Government web site, see Department of Environment and Heritage (n.d.) Environmental Management Systems. Available at http://www.deh.gov.au/settlements/government/ems/index.html. Accessed 3 January 2007. (Back)


[13] Department of Environment and Heritage (n.d.) Efficiency Databases. Available at http://www.deh.gov.au/industry/corporate/eecp/industry.html. Accessed 3 January 2007, Environmental Management guidelines and resources for the Mining Sector are freely available, see Department of Environment and Heritage (n.d.) Industry and Business Sustainability. Available at http://www.deh.gov.au/industry/industry-performance/minerals/index.html . Accessed 3 January 2007. (Back)


[14] von Weizsäcker, E., Lovins, A.B. and Lovins, H. (1997) Factor Four: Doubling Wealth, Halving Resource Use, Earthscan, London. (Back)


[15] Braithwaite, J. and Drahos, P. (2000) Global Business Regulation, Cambridge University Press, Cambridge. (Back)

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Program is supported by the Australian National Commission
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