Wednesday, August 18, 2010

That's one way to do it!

Or, how to encourage conservation and save energy

A recent New York Times article discusses the draconian measures being taken by the Chinese government to make the nation more energy efficient ("China Fears Consumer Impact on Global Warming," K. Bradsher, NYT, July 4, 2010). In the last three years China has shut down more than a thousand older coal-fired plants and leads the rest of the world in investment on wind turbines and other clean technology according to the article. In addition, new, stringent, requirements for energy use and auto mileage are in place. But, the concern is that the growing demand of Chinese consumers will overwhelm even these efforts at green house gas (GHG) reduction. Apparently, this last winter and spring showed the largest six-month increase in GHG tonnage ever produced by a single country.

So, swing the ax at the low performers. That's one way to do it.

The NYT articles states that "China’s goal has been to reduce energy consumption per unit of economic output by 20 percent this year compared with 2005, and to reduce emissions of greenhouse gases per unit of economic output by 40 to 45 percent in 2020 compared with 2005."

Recall the "equation" for calculating impact first discussed in the September 1, 2009 posting? It states that:

Impact = Population x (GDP/person) x (Impact/GDP)  where GDP stands for gross domestic production

The challenge in China is that, in addition to population growth with time, the increasing standard of living is driving GDP/capita up and, as was noted in September 2009, unless you can reduce the Impact/GDP (that is, the role of manufacturing, energy generation and resource utilization) sufficiently, you will see the impact necessarily rise.

What is "sufficient"? Well, to close the gap between sustainable use of resources and the business as usual level (the chart that grows "up and to the right" for consumption and impact) you need to accomplish both a reduction in impact/GPP to track the required emissions and consumption trends but also reduce the impact/GDP to offset the growing demand of more and more consumers. It is sort of like trying to pay off a mortgage in an inflationary market when you are constantly taking out equity loans on top of the original mortgage. (Gee, we know how that works out!)

So, what to do? One approach is that used by China.

We are not likely to do that in the US. But, if you do business (or want to do business) in China your products may be affected by these regulations and decisions.

What about in the US? A recent Environmental Leader posting, July 15, 2010, on "Gov Contractors Must Track Emissions or Risk Losing Contracts" adds to the discussion. The article states "Contractors for the federal government that do not track their greenhouse gas (GHG) emissions could risk losing their contracts, according to a report in the Federal Times about new rules by the General Services Administration (GSA)."

It goes on to say that these rules result from the "GSA’s response to an executive order … issued in October which directed federal agencies to find ways to reduce their GHG emissions. Potentially, the new rules could have far-reaching consequences through the entire economy, not just government contractors."

Apparently, "only" scope 1 and 2 emissions reporting would be required, meaning emissions generated by employee commuting and business travel are not included. (We discussed emission scope reporting requirements in a prior posting.)

Given the large role of manufacturing industry serving as government contractors, this could have a big impact.

First, determine what impact your process has (at least energy to GHG conversion) and then roll out the green technology wedges!

So we may need to respond to consumer pressure or, more likely in the short term,  some form of regulation or standardization.

Some may call this taxes of some type. Or at least it has the effect of taxes to many. This is not too popular. I was reminded of Dan Rostenkowski, long time bull of the congress and head of House Ways and Means Committee, who died recently. He headed the committee that wrote most of the tax laws in the UA and he was famously quoted one time as saying "no one calls me up and asks me to raise their taxes!"

Cap and trade, or carbon trading, is often pointed to as one of the "taxes" that will impede industry (while promoting utilization of green technologies for manufacturing.) Another article on Environmental Leader's site calls that into question however. It is not simple. Apparently European Union (EU) companies are offsetting their emissions by improving the competitiveness of their competitors offshore through these carbon credit purchases (!) - so-called "leakage" - moving their business outside the EU. But, it doesn't appear to be increasing outsourcing of business overall according to other reports.

The article gives a neat site by Sandbag that shows a map illustrating the international trade in offsets between the EU and the rest of the world in 2009.

Programs like cap and trade, or regulation, or industry norms adopted to improve the impact of a specific industry all move us towards greener manufacturing. They occur because of competitiveness of countries and regions, real concerns about environment, customer demand, or just plain good economic or business sense.

Apropos that last comment about good business sense, I mentioned in a posting recently the comments of Jeff Immelt of GE on greening industry. He said that "with respect to companies like GE that want to stay ahead of the curve in terms of investing to maintain competitiveness and profitability,  … it’s going to change in like, 15 minutes one day.”  “I guarantee that’s going to happen.” He followed on commenting that since no one can predict when this will happen - you have to plan for this in your business strategy.

Regulation and industry norms take time. Breakthroughs in technology or process improvements can occur instantly. Be ready!


  1. I agree with you in that we're not likely to take this approach in the US but the Department of Labor does have programs to assist with green initiatives. According to this article about green jobs they provided $290 million in federal grants which aims to prepare more than 120,000 Americans for environmentally friendly jobs by 2012.

    It's a good start in the right direction.

  2. Very good article, it is indeed for me amazing how the Chinese make changes so fast in their benefit.

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