Back in February this year I wrote a short post about how Tesco were increasing their use of rail travel to reduce CO2 emissions. It was a good example of how to change your business to both deliver cost savings and be more environmentally friendly. In the February 2012 edition of CIMA’s Financial Management (pp 26.30), there is a great article written by Ben Schiller which provides a number of examples of firms which are seeking ways to reduce transport costs and CO2 emissions. One quote from the article sums up the problems around transport costs “many ships operating today were built to run on $150 a tonne bunker fuel, not a price four times that”. Of course, it is not only ships but all forms of transport which are facing these price increases, such as road haulage and even company cars (for example, when I bought my first diesel car just over 3 years ago, diesel was 99 cent per litre at my local station, now it’s over €1.50). As a result of these increasing costs, we can see more sleek looking fuel-efficient trucks for example on our motorways.
I found Ben Schiller’s article really great less for some examples we might know about – chip fat being converted to biodiesel, electric vehicles – but more for some real examples from firms we all probably know well. The first way firms can save on transport costs (and green up) is to bring production closer to the market – L’Oreal for example have brought some of their supply chain in-house, by producing thinks like packaging on-site. A second way, is to change the modes of transport. For example, both Philips and Tesco use canals to transport bulky product. Phillips use barges to transport goods to Rotterdam port, while Tesco ship wine between Liverpool and Manchester. In Spain, SEAT rebuilt a short rail line to Barcelona port, carrying 80,000 cars annually using 2 trains a day. Even large shipping companies like Maersk are doing things like “slow-steaming ” (or sailing slower) to reduce CO2 emissions and fuel costs.
There are more examples in the article itself. You can read an online summary here.
When I teach about carbon accounting, the first thing I do is get students to look at their own CO2 footprint. This typically means going to a website and putting in some information on your lifestyle. I read an article from the Economist a while back which outlined the differences in CO2 emissions based on age. The study was based on US data on nine types of consumption—including electricity use, driving cars, buying clothes and food. The amount of money spent on each was used to estimate a CO2 footprint by age. According to the article the 60-64 age group produces the most CO2, and this group is going to get larger in number over the coming years. You can click on the link to read the full article and see a nice graphical depiction of CO2 footprint by age
A year or two ago I set a hypothetical assignment for some of my students on a comparison of CO2 emissions on road freight versus rail freight. I based on the assumption that a CO2 charge would have to be paid by firms, and they could in fact save money by using rail freight. Of course the problem with rail freight is that is does not go door-to-door, but it might still be an option for transporting between cities or depots – depending on volume. At the time when I set the assignment, I did not find many examples (at least in the UK/Ireland), but I came across a Tesco press release in November last. According to the release, Tesco are expanding their use of rail services, which will mean 24,000 tons less CO2 and 72,000 less road journeys. Yes, this is a great thing for the environment, but the management accountant in me really wants to know the cost savings generated by this.
I was in Germany a few months ago and seen a copy of Handelsblatt (a leading business newspaper) on July 20th last at a hotel bar. As you do, I scanned it while ordering a local beer (Moritz Fiege Pils). I noticed that the German Green Party wanted to ban F1 from the Nurburgring and Hockenheim. I read the article and it made me laugh to be honest. The reasoning was that the F1 circus is bad on CO2 emissions and all that stuff. Now a few facts first – I love motor sport, I am a management accountant, I like the old ways of doing things (now called environmentally friendly/recycling/grow-your-own) and I could not resist the picture of the F1 girls for this post.
But, being serious. Research and development expenditure is one of those things a management accountants might find hard to deal with. It’s normally a substantial cost, but the return is often uncertain. Now back to F1 and the German Greens. Motor manufacturers like Mercedes, Honda and Renault (among others) have over time spend $billions on F1. And what do they get out of it? Well, every car nowadays has an EMU (Engine Management Unit) or “brain” that controls and monitors every thing a car does – do you know most cars have no accelerator cables at all; it’s a sensor on the pedal which the EMU monitors and the pedal is tensioned to give the feeling of a traditional pedal. Where was this technology perfected? F1 of course. And nowadays, F1 cars are lighter, faster, more fuel-efficient and even capture energy under braking (the KERS system). Surely this will pass on eventually to normal road cars, which will mean lower fuel consumption and lower CO2 emissions and so on. So, to bring it all back to management accounting. If we were to do as the German Green Party suggests, there would be no F1 in Germany (home of Mercedes), which might mean less research and development expenditure in F1, which in turn might halt the development of more fuel and energy-efficient road cars for you and I. Okay, it might be hard to put a money value on the benefits of F1 research and development in the long run, but it seems daft to try to ban it. So far, the history of F1 has shown us what the cars of tomorrow will have on board. If that means efficient, energy harnessing cars for the future, we need to encourage it. The costs (monetary and environmentally) may be easier to ascertain and outweigh the benefits in the short-term. However, I can only see future benefits from F1 for car manufacturers who should be able to produce (in time), better, safer and more environmentally friendly cars for Joe Bloggs. Kind of goes against what I thought any Green Party stands for to go against such progress. But, hey I am no politician! But it seems a classic case (from the Green’s view) of not looking at all costs and benefits of an activity over the long term.
Many young Irish people (and other nations too of course) are making their way to Australia to seek employment and/or better their career prospects. The Australian economy seems to be booming based in its natural resources and its closeness to the Chinese markets – who consume huge quantities of these resources. This boom may be affected somewhat by the imposition of a carbon tax from 2012 on all firms emitting more than 25,000 tons of CO2 per annum. This will increase the output costs, which may affect consumer spending. To balance the affect, the Australian Prime Minister has promised some tax reductions. Read the full story here
The July edition of Scientific American gives a great example of some of the difficulties in tracking and accounting for carbon emissions. Most larger business now track their carbon emissions, and in most developed countries have to pay to emit carbon dioxide. So it makes business and environmental sense to reduce emissions.
The article in Scientific American tells the story of plug-in hybrid and electric cars (a plug-in hybrid has a small normal engine which means it still uses more carbon based fuel, whereas an electric car has no engine at all). A plug-in hybrid you might think is emits less carbon than a normal hybrid, and in turn a full electric car would gave zero emissions. But it’s not that simple as you have to consider how the electricity is produced. As noted in the article, the vast majority of electricity is produced by oil, coal and natural gas in the United States. Coal is the worst in terms of carbon emissions and in some states it is the main fuel source for electricity production. So in Illinois or Ohio, a zero-emission electric car would contribute more carbon emissions than a normal hybrid like a Toyota Prius. In both regions coal is used to generate 65-75% of the electricity.
What this example shows is how tricky it can be to determine your own carbon emissions or that of a business. You really have to trace things back to source to be sure you’re counting is correct. Another example I came across recently really surprised me. It was in a book called ‘ In Defence of Food ‘ by Michael Pollan. The raising of lambs for meat in the UK uses a lot of energy and carbon as land is treated with chemical fertilisers. In New Zealand, lush natural meadows remove the need to fertilise. As the manufacture of chemical fertilisers consumes a large amount of energy, it may actually be more environmentally sound to import lamb by air from New Zealand to the UK. Crazy I know, but it shows the type of thinking needed when trying to account for carbon use.
According to expert blogger Tracy de Morsella, the market for software to help global firms with carbon accounting has increased 84% in 2009 to a total global value of almost $400m. Carbon accounting means that firms account for (or keep track of) the amounts of CO2 they emit. Firms are under more pressure to be greener and reduce CO2 emissions. Pressure is not only coming from regulators, but from customers too. On top of this, smaller firms are starting to feel the pressure as suppliers to the larger firms. Predictions are, the market for carbon accounting software will continue to grow and the big players like SAP are already there. Read the full from De Morsella here.