Energy Efficiency and Waste Minimization

Key Challenge

Clearly understanding the possibilities for quickly improving environmental and sustainability performance. Improving environmental performance need not just involve complex plans and activities requiring significant investment. Organizations have many opportunities for quick wins through waste minimization, to make an immediate positive impact on the environment, and to achieve efficiencies and cost savings.

Background

This section deals with the quick wins that every organization can consider to reduce its carbon footprint. Improving Information Flows to Support Decisions considers a more formalized sustainability accounting approach in which the key considerations in this section are also relevant. For many governments, the only way to meet challenging targets for reducing greenhouse gas emissions will be to ensure much higher energy efficiency and a shift to low carbon energy sources.

Energy, waste, and water usage are significant business costs for most organizations. Implementing relatively simple measures to maximize savings in these areas (collectively known as waste minimization) involves:

• Implementing a systematic approach to monitoring and controlling usage and consumption; and
• Targeting investment, for example in energy-efficient equipment to improve energy efficiency, or in recycling facilities to re-use or reduce waste.

Professional accountants in business have a significant role to play in promoting energy efficiency, minimizing waste (and improving materials use), and reducing water consumption, especially in smaller business contexts where such costs can total several percent of turnover. For example, accountants (particularly in smaller business contexts) can regularly review energy bills and take frequent meter readings to help operational managers track the use of energy, thereby helping them take control of energy costs. The adage "what is measured gets done" applies to waste and water management, and to cutting energy costs. It helps organizations to reduce their carbon footprint and boost profits relatively simply, by identifying the cost of waste and inefficiency and seizing the opportunities to reduce them.

An increasing number of countries are using green or eco taxes to incentivize organizations to reduce carbon emissions. Introducing taxes and other economic incentives (which can take various forms) to promote sustainable activities are designed to internalize the cost of market distortions created by organizations (i.e. costs to society that previously did not appear in financial accounts). Examples include carbon taxes on the use of fossil fuels and waste disposal taxes. Organizations need to consider how green taxes and environmental regulation impact their operations and the cost of doing business. They should also be aware of incentives such as enhanced capital allowances for energy-saving investments.

Key Considerations

Energy efficiency

Identifying large environmental costs that could be reduced: The general ledger provides a starting point for identifying which environmental costs to target. However, more detailed information can be obtained from (a) speaking to people in different functions such as operations, purchasing, sales, and marketing, and (b) analyzing bills, current processes and ways of working, invoices, and compliance costs.

Monetizing procedures for costs, savings, and revenues related to any business activities with a potential environmental impact: This helps to develop a business case for tackling these issues. Setting out to achieve greater efficiency is easier after environmental impacts have been identified and prioritized, then communicated (with their associated costs and potential revenues) to the organization.

Using measurement and targets and ensuring accountability: Electricity, gas and other energy-related meters can be the most important tools in helping to identify opportunities to save energy. An analysis of energy consumption allows a review of energy consumption patterns, and will support short-term quick wins to improve energy efficiency and investment decisions about whether, for example, more energy-efficient machinery can cut costs and improve bottom-line performance. The key to pursuing energy efficiency is making someone responsible and accountable for energy-saving initiatives. That person might be made responsible for reading meters, understanding patterns of consumption, ensuring that employees know about the main areas of energy waste, and motivating them to change practices to save energy. It can also be useful to use targets as a means to changing behavior and usage - see caption 18.

Small (and no cost) changes can lower energy costs and reduce carbon emissions: Many jurisdictions have established government or government-sponsored agencies (see Caption 17 and the Carbon Trust in the UK, a private company set up by the British Government to respond to the threat of climate change) to advise organizations and homeowners on simple actions that lead directly to energy efficiencies, for example by switching equipment off when it is not being used, thus reducing lighting and heating costs. In many countries, organizations are further incentivized to reduce energy consumption and carbon emissions through taxes on energy use. Even where up-front costs exist to becoming more efficient, payback periods can be short. For example, IBM has found that there is typically a lot of low-hanging fruit in making data centers more energy efficient. According to Steve Sams, Vice President of Facilities Services for IBM, "we found one client an opportunity to save 53 per cent of energy consumption in their current data center. That was extreme. But we're doing hundreds of these. At a 50,000 square foot site in Lexington, Kentucky, we found a few things with a payback of two years or less. But more importantly, the data center was completely out of capacity. So through efficiency, we gave them roughly 7,500 square feet of additional building capacity. They could go out and get new clients, install them, and tap into the revenue stream to pay for energy-efficiency improvements."

Spreading awareness: it is possible to support employees with energy training, motivation, and awareness events to focus their efforts on specific activities that can reduce energy consumption. This is particularly encouraged as part of implementing an environmental management system through adopting ISO14001 (see Integrated Management Systems). This can also be done at multiple sites and reported on in annual financial reports. For example, some organizations report on the number of their manufacturing sites that have certified against ISO14001.

Caption 19 considers the benefit and use of carbon footprinting as a means of calculating and communicating the carbon impact of doing business.

Waste and water minimization

Minimizing materials waste: can be the most effective method of boosting resource productivity. As with energy efficiency, accountants can identify the cost of wasted materials and highlight opportunities to reduce their quantity. It is usually important to work closely with operational staff to understand materials usage and where most waste is generated. Although waste management does cover waste disposal (which is increasingly costly and subject to regulation in many countries), it is more proactive to evaluate materials usage (including water consumption) as the first stage of waste minimization. The most effective action, if possible, is to change working procedures and processes to improve materials use and reduce waste. As a next step, waste can also be reused and recycled, thereby reducing the extent and cost of disposal. For example, reusing transport packaging can reduce packaging costs.

Tracking physical accounting information: Organizations that use materials to produce products can use a mass balance of physical inputs and outputs to help identify the amounts of materials purchased (or water consumed) during a year. They can then balance these against the amounts leaving the organization as products or waste, or stored on site. Tracking physical accounting information is covered in Improving Information Flows to Support Decisions.

Reviewing and understanding the impact of legislation regarding waste: Landfill taxes are used in some countries to reduce landfill and encourage recycling. Regulations governing waste packaging can be onerous and apply to all products used to contain and deliver goods, and recycling targets can sometimes be attached to their use.

Changing processes: As with energy use, water reduction involves understanding water use and wastage. Reducing water costs requires allocating consumption to activities and possibly requiring accountability, at a process level, for (a) identifying water-saving opportunities, (b) and changing processes to reduce consumption and maintain savings. Water use in a manufacturing and extraction-based organization can be costly, as water can be used in cleaning, cooling processes, processing, steam raising, and conveying materials.

Minimizing waste, and identifying and classifying environmentally related costs within a formalized environmental management accounting approach, are explored further in Improving Information Flows to Support Decisions.

An important general consideration is to ensure that an organization has established processes to keep abreast of emerging opportunities for energy efficiency and waste minimization. For example:

• Green taxes or climate change levies on energy use provide incentives for reducing consumption. Carbon taxes are becoming more popular to encourage the reduction of emissions;
• Enhanced capital allowances can incentivize the purchase of qualifying energy-efficient equipment;
• Tax credits for research and development can stimulate innovation, for example in developing renewable sources of energy;
• Landfill taxes encourage the reduction of waste and landfill; and
• Legislation to promote better product designs and recycling: For example, the EU's End-of-life vehicles Directive and the Waste Electrical and Electronic Equipment Directive improve the recycling of scrapped vehicles and require producers of electrical equipment to pay for end-of-life collection of their products.