sustainability: some thoughts

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Sustainability: Some thoughts . . .

Economics 155/ Earth Systems 112June 4, 2007

Oren Ahoobim (TA)[email protected]

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Focus of last lecture:Sustainable Development“development that meets the needs of the present without compromising the ability of further generations to meet their own needs."

Focus of this lecture:Sustainability on a more “local” levelConsider sustainable buildings, businesses, and communities

Role for policy interventionPrinciples of sustainability on local levelExamples of implementation

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"Sustainability begins at home, but its destiny is to engage theproblems of the world. We will build on our company's rich legacy of leadership in solving the world's most pressing problems with a spirit of fearless accountability, not just for our own footprint on the planet, but the collective footprint we make as part of the human family." —Andrew Liveris, Chairman & CEO, The Dow Chemical Company

“We believe it's in business's interest to become more sustainable... this will become a must-have rather than a nice-to-have issue, going forward. We want to build our brand round that position” - John Duggan, CEO, Gazeley

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“With so much more energy needed for development – especially in China and India – I am convinced that there is a financially sustainable future for a responsible hydrocarbon company. And responsible includes being a leading company in CO2 mitigation.”-Jeroen van der Veer, Chief Executive Shell

“We do not believe that you can be ‘half responsible’ or pick and choose the convenient areas to be responsible in” – Arun Sarin, Chief Executive, Vodaphone, 2006 Corporate Responsibility Report

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Sustainability Requires Measurement

Must be able to measure the things we want to sustainHabitats and species“standard of living” or “quality of life”

Often involves measuring the things we don’t wantWastes and emissionsEcological/Carbon footprint

Must take a “life-cycle” perspective on measurementMeasurement must take into account full scope of activitiesSystems Thinking

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Dow Chemicalhttp://www.dow.com/commitments/intro/principles.htmhttp://www.scorecard.org/env-releases/ranking.tcl?tri_id=48667THDWCMICHI

Newmont Mininghttp://www.beyondthemine.com/http://www.beyondthemine.com/?l=2&pid=5&parent=19&id=150

ICMMhttp://www.icmm.com/icmm_principles.php

BPhttp://www.climatechangecorp.com/content.asp?ContentID=4827

Shell http://sustainabilityreport.shell.com/responsibleenergy.htmlhttp://shellcenter.rice.edu/

Home Depothttp://www6.homedepot.com/ecooptions/index.html?cm_mmc=Thd_marketing-_-Eco_Options_Site_07-_-Vanity-_-Home

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Presidio MBAhttp://www.presidiomba.org/

ASU School of Sustainabilityhttp://schoolofsustainability.asu.edu/

NYChttp://www.nyc.gov/html/planyc2030/html/plan/plan.shtmlhttp://www.guardian.co.uk/Columnists/Column/0,,2087887,00.htmlhttp://www.nytimes.com/2007/05/23/nyregion/23taxi.html

Stanfordhttp://ssu.stanford.edu/http://news-service.stanford.edu/news/2007/february21/gifs/2835.htmlhttp://environment.stanford.edu/sustain/sustainability.html

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Some Basic Principles of Sustainability

Sustainable use of natural resourcesRenewable resources (forests, fisheries)What about depletable resources (oil, coal, precious metals)Land use and effects on biodiversity

Sustainable use of materials and designReduction/elimination/capture of harmful emissionsMinimization of other wastesSafe and responsible disposal of wasteEfficient use of energy

Additional Sustainability ConcernsRespecting human rights Maintaining labor standards Providing sustainable wagesMaintaining proper civil and government relations

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Why focus on Buildings, Businesses, and Communities?

BuildingsUse ~70% of U.S. electricity, ~35% of direct natural gas, ~40% of all energy (excluding the industrial processes occurring inside) Emit ~40% of fossil-fuel CO2 (60% in UK)Buildings industry uses 3 billion tons/year of raw materials (40% of total global use)Responsible for ~16% of global freshwater use annuallyHave the slowest turnover of any major type of capital stockStructures represent 85% of U.S. fixed capital assets

Main sustainability drivers include:Energy usage for lighting, heating, and coolingMaterials usage for structures and interiors

Source for data statistics: Lovins (2007)

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Businesses (the private sector)Are everywhere, directly interacting with the environment and society at large“Business is the primary engine of wealth creation and social change—and environmental damage.” (Rocky Mountain Institute)Often have more capacity to affect change (?)Where markets exist, incentives can be a powerful force

Main sustainability drivers include:Energy usage for lighting, heating, and coolingMaterials usage for structures and interiorsEmissions from industrial processesEnergy for transportation

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CommunitiesAre everywhere, directly interacting with the environment and society at largeInclude buildings, businesses, and others

Main sustainability drivers include:Energy usage for lighting, heating, and coolingMaterials usage for structures and interiorsEnergy for transportation and transportation planning Land use planning and biodiversity impactEfficiency of water use

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Overarching Considerations

Are sustainability and economic growth inherently in conflict?What is the relationship between sustainability and free markets?

Inherently in conflict?Can free markets drive sustainability?What characteristics of free markets would we need to have in order to be confident that markets could deliver sustainability?

No externalities across time and space (at least need all “goods” priced to account for externalities)Perfect information on value of all market and non-market goods and services, including ecosystem servicesPerfect information on the preferences and technologies of future generations(This is still an anthropocentric view)

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Role of Policy

Can the invisible hand of the market deliver sustainability? Is there a market failure or barrier?

Problems with inter-temporal (across time) optimization:To the extent that current generations take into account the well being of all future generations, then we would expect efficient,sustainable outcomesIn practice, this doesn’t always happenWe have enough difficulty addressing present-day externalities (think about all the common-resource problems addressed in class)It is difficult to address inter-temporal externalities

Can Coase help us?How do you negotiate with future generations? Transaction costsare very high

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Role of Policy

Problems with inter-temporal optimization: Insights from Behavioral Economics

Myopia (short-sightedness) is a real problem for individuals trying to make optimal choicesStudies show that individuals tend to have high discount rates for the future, often ignoring any benefits or costs to be gained after a few years

McKinsey study on energy efficiency investments: most people require a 2-year payback period to break-even on investments in energy efficiencyFrom an inter-temporal optimization point of view, this means that you have an infinite discount rate for future energy savings

Can the invisible hand of the market deliver sustainability? Is there a market failure or barrier?

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Myopia and Rationality examples: Total Cost of Ownership

PrintersInitial cost of the printer can be very low, but ink cartridges can cost ten times more than the printer itself over the life of the printer

Home InsulationLarger initial costs, with savings on energy costs over the life of the home

Hybrid vehiclesLarger initial costs, with savings on fuel costs over the life of the car

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Role of Policy: Helping with Information Collection

Problems with inter-temporal optimization: Insights from Behavioral Economics

Bounded Rationality--perhaps individuals are not able to gather and process all the information available to them and therefore may not be optimizing perfectlyFor example, how can I calculate my own “carbon footprint” to determine if I am polluting at the socially efficient level?

Carbon CalculatorHow far back do I go?

Do I count my contribution to the electricity that went into running the computers that were used to create the website?The energy that went into transporting the seeds that went into growing the crops that went to feeding the chickens, that provide me with eggs to eat?Do I even have any of this information available to me?

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Eco-Labels: Providing Information

Sustainable Seafood Informationhttp://www.mbayaq.org/cr/seafoodwatch.asp

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Supply Chains and Eco-Labels

Whole Foods Markets switch to 100% renewable energy for store energy needs (through credits)

The Whole Foods purchase will help avoid more than 700 million pounds of carbon dioxide pollution in 2006, says the EPA. That's the rough equivalent of taking 60,000 cars off the road, the EPA says

Tesco-largest retailer in the UK will add a carbon label to all the products it sells

Carbon footprint of product will provide a measure of the energyrequired for its manufacture, packaging and transport to the supermarket shelves http://environment.guardian.co.uk/food/story/0,,1994169,00.html

Marks and Spencer-large retailer in the UKAs well as cutting energy and using more renewable materials, M&S will aim to source its food from the UK and the Republic of Ireland as a "priority" in an attempt to reduce air freighthttp://news.bbc.co.uk/2/hi/business/6261939.stm

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Eco-Labels: Providing InformationCarbon Content Label: Measurement is difficult

Source: www.carbontrust.co.uk; Economist magazine 5/19/2007

The Carbon Trust (UK Organization)Carbon label based on an experimental methodology developed for measuring embodied carbonIncludes the carbon dioxide produced in the manufacturing of theproduct, as well as the carbon from packaging, transporting to store, and disposal of the goodNot included:

Carbon from employees of manufacturer commuting to workCarbon from energy needed for refrigeration, lighting, and heating in storesCarbon from using the product (e.g. boiling water to cook the potatoes, water usage in shower when using the shampoo)

Agricultural goods particularly difficult to assess emissions from cattle and land use/change—use computer models for production

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How far up the supply chain do you go to measure sustainability?

Retail Stores

• Energy use (e.g. solar power)

• Building materials

• Land use

• Water use

Transportation of Goods

• Energy use

•Biofuels?

• Land use

Mining of Materials

• Energy use

• Land use

• Water use

• Chemical use

• Community displacement

http://www.tiffany.com/about/corporateResponsibility/default.aspx

http://www.eco-logica.co.uk/WWFreport.pdfhttp://www.beyondthemine.com/

http://www.responsiblegold.org/codes.asp

http://www.icmm.com/sd_framework.php

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Tiffany’s Sustainability Report

http://www.tiffany.com/local/en-us/PDF/TCO_sustainability.pdf

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Sustainable Mining Site?

South Carolina Reclamation to lakes and wetlands

??

Unnamed European Town

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Wisconsin mine reclamation

During Operations

http://www.mii.org/flambeau/flam.html

After Reclamation

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Role of Policy: Aligning Incentives

Can the invisible hand of the market deliver Sustainability? Is there a market failure or barrier?

“Split Incentives” Problem: The builder of the home/office/car has an incentive to minimize initial costs, but the end user/operator must pay the costs of ownership over the life of the asset

For example, the builder doesn’t want to spend additional money on energy efficiency (insulation for the home, fuel economy for the car) because that would just raise her costs and make her product more expensive to purchase, while the energy savings would accrue to the buyer in a later period

But shouldn’t the market correct this problem?In equilibrium, buyers would know the true cost of ownership, would take into account the life-time costs, and the relative energy efficiencies of the products should be built into the initial selling price

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Aligning Incentives: Interface Carpets

One of the world’s largest manufacturers of carpetsInternalized externalities: changed the business model from selling carpets to leasing carpeting servicesGoals:

Energy use: factories and offices use renewable powerMaterials and waste reduction

Recycle 100% of fabrics; demand similar standards from suppliersModular carpet pieces minimize material usage (replace tiles, not entire floor)

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Role of Policy: setting/coordinating standards

Perhaps the most significant role for public policy is coordination to reduce transaction costs

Providing information: Eco-labels

Setting standards: LEED for buildings, accounting/reporting standards

Standards reduce transaction costs and provide a measure of credibility and transparency

Coordination/planning for large groups and communities

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Green Buildings Council: LEED Certification

Leadership in Energy Efficiency and Design (LEED)

6 CATEGORIES for Evaluation of BuildingsSustainable Sites Water Efficiency Energy & AtmosphereMaterial & Resources Indoor Environmental Quality Innovation & Design Process

Add up points for each category to get final certification: Base, Silver, Gold, Platinum

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Green Buildings Council: LEED category details

1) Sustainable Sites Erosion and Sedimentation ControlSite SelectionUrban Redevelopment Brownfield RedevelopmentAlternative TransportationReduced Site DisturbanceStormwater ManagementLandscape & Exterior Design to Reduce Heat IslandsLight Pollution Reduction

2) Water EfficiencyWater Efficient LandscapingInnovative Wastewater TechnologiesWater Use Reduction

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3) Energy & AtmosphereCFC Reduction in HVAC&R EquipmentOptimize Energy PerformanceRenewable EnergyAdditional CommissioningOzone DepletionMeasurement & VerificationGreen Power

San Francisco Administration Building(in development; may generate up to 50% of own power needs)

30Source: ARUP

31Source: ARUP

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4) Materials and ResourcesBuilding ReuseConstruction Waste ManagementResource ReuseRecycled ContentLocal/Regional MaterialsRapidly Renewable MaterialsCertified Wood

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5) Indoor Environmental QualityCO2 MonitoringIncrease Ventilation EffectivenessConstruction IAQ Management PlanLow-Emitting MaterialsIndoor Chemical & Pollutant Source ControlControllability of SystemsThermal ComfortDaylight & Views

6) Innovation and Design ProcessInnovation in DesignLEED Accredited Professional

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LEED Platinum Buildings

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LEED Platinum Buildings: Adobe (retrofit)

The building features a bevy of cost-saving, energy-saving systems, including a computer system that checks the weather forecast before turning on the sprinklers. The $3,600 smart irrigation system will pay for itself in less than five months, by saving $10,000 each year. By retrofitting parking garages in the East and West towers with fluorescent lighting, Adobe will save $100,436 a year on an investment that cost only $157,775. We hope others in Silicon Valley see that being green and saving cash goes together like Photo and Shop (SJ Mercury News)

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Role of Policy: Get out of the way and let the market do it (?)

Mark Wigley, Dean of Columbia School of Architecture (NY Times May 20, 2007)

At the same time, Wigley admits that architects cannot accomplish anything without willing clients

“My prediction is that if we have a change in America, it won’t be driven by politicians or architects but by the developers,” he said. “We’re at the moment where developers can gain a significant advantage if you reduce energy. For the first time you have clients who are willing to pay for this. So I think the one group we associate most with greed and inefficiency, it will lead the way in the future.”

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Standards for Businesses: Green Accounting

Traditional Accounting: Provides information on the financial sustainability of the enterprise

Balance SheetsStatement of Cash FlowsIncome Statement“Bottom Line” = net earningsAllows investors to make informed decisionsDoesn’t necessarily capture the true social costs and benefits

Green Accounting: Aims to paint a more complete picture of the economic, social, and environmental sustainability of the enterprise

“Triple Bottom Line”Needs new accounting measures and verificationProblems:

How do you correctly measure the important environmental and social effects?

(Similar measurement problems as the Genuine Savings measures for nations)

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Green Accounting: Aims to paint a more complete picture of the economic, social, and environmental sustainability of the enterprise

International framework for reporting on economic, environmental, and social performanceVision for sustainability reporting that “becomes as routine andcomparable as financial reporting”Includes both environmental and social measures, many of which are quantitative

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Environmental Measurement and Accounting

MaterialsMaterials used by weight or volumePercentage of materials used that are recycled input materials

EnergyDirect energy consumption by primary energy sourceIndirect energy consumption by primary source Energy saved due to conservation and efficiency improvements.Initiatives to provide energy-efficient or renewable energy based products and services, and reductions in energy requirements as a result of these initiativesInitiatives to reduce indirect energy consumption and reductionsachieved

WaterTotal water withdrawal by sourceWater sources significantly affected by withdrawal of waterPercentage and total volume of water recycled and reused

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Environmental Measurement and AccountingBiodiversity

Location and size of land owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areasDescription of significant impacts of activities, products, and services on biodiversity in protected areas and areas of high biodiversity value outside protected areas Habitats protected or restoredStrategies, current actions, and future plans for managing impacts on biodiversityNumber of IUCN Red List species and national conservation list species with habitats in areas affected by operations, by level of extinction risk

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Environmental Measurement and AccountingEmissions, Effluents, and Waste

Total direct and indirect greenhouse gas emissions by weightOther relevant indirect greenhouse gas emissions by weightInitiatives to reduce greenhouse gas emissions and reductions achievedEmissions of ozone-depleting substances by weightNOx, SOx, and other significant air emissions by type and weightTotal water discharge by quality and destinationTotal weight of waste by type and disposal methodTotal number and volume of significant spillsWeight of transported, imported, exported, or treated waste deemed hazardous under the terms of the Basel Convention Annex I, II, III, and VIII, and percentage of transported waste shipped internationallyIdentity, size, protected status, and biodiversity value of water bodies and related habitats significantly affected by the reporting organization's discharges of water and runoff

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Standards for Businesses: Green AccountingEnvironmental Measurement and Accounting

Products and ServicesInitiatives to mitigate environmental impacts of products and services, and extent of impact mitigationPercentage of products sold and their packaging materials that are reclaimed by category

ComplianceMonetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations

TransportSignificant environmental impacts of transporting products and other goods and materials used for the organization's operations, and transporting members of the workforce

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Standards for Businesses: Green AccountingSocial Performance Measurement and Accounting

CommunityNature, scope, and effectiveness of any programs and practices that assess and manage the impacts of operations on communities, including entering, operating, and exiting

CorruptionPercentage and total number of business units analyzed for risks related to corruption Percentage of employees trained in organization's anti-corruption policies and proceduresActions taken in response to incidents of corruption

Public PolicyPublic policy positions and participation in public policy development and lobbying Total value of financial and in-kind contributions to political parties, politicians, and related institutions by country

Anti-Competitive BehaviorTotal number of legal actions for anti-competitive behavior, anti-trust, and monopoly practices and their outcomes

ComplianceMonetary value of significant fines and total number of non-monetary sanctions for non-compliance with laws and regulations

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• Helps companies prepare a GHG inventorythat represents a true and fair account of their emissions, through the use of standardized approaches and principles

•Methodologies and spreadsheets for calculation

• http://www.ghgprotocol.org/templates/GHG5/layout.asp?type=p&MenuId=OTAx&doOpen=1&ClickMenu=Calculation%20tools

• Provides businesses with information that can be used to build an effective strategy to manage and reduce GHG emissions

• Increases consistency and transparency in GHG accounting and reporting among various companies and GHG programs

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Role of Policy: Planning and Coordinating

Sustainable Communities

Considerations for New Community Design:“……”

Location, materials used, land impact, energy, water, jobs, recreation, etc.

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Sustainable Communities: Dongtan Eco-City in China

Shanghai

Vision:Turf and vegetation cover the roofs, providing insulation that also recycles waste waterPollution-free buses, powered by fuel cells, run between neighborhoodsIntranet service forecasts travel times and connects people who want to share a carRoads are laid out so that walking or cycling to work is faster than drivingElectricity from wind, solar, and burning of organic wasteUp to 80% of solid waste is re-cycled

'We are going to help establish a model of how a sustainable city works, but it must also be a viable financial proposition in the long term to attract international investment.‘ (P. Head, Developer ARUP)

Building a city three-quarters the size of Manhattan by 2040 for 850,000 peopleThe first phase will accommodate some 50,000 people (by 2010)Goal to be self-sufficient in energy, water and most food products (zero carbon from 2010)

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Sustainable Communities: Coyote Village, San Jose CA

Population of Bay Area expected to increase by 2 million by 2035Where will these people live??!!!!Plans to build a community covering 7,000 acres outside of San Jose (approx one-half will be open space/greenbelt)

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Sustainable Communities: Coyote Village, San Jose CA

Vision:26,000 Housing UnitsRelatively High urban densityAffordable housing set-asides, health care facilities, new schools (social sustainability)Integration of retail, industrial, and residential spaces (economic sustainability)Use of advanced water treatment/recycling, protection of species habitat, LEED certified buildings, and plentiful public transportation (environmental sustainability)

**Photos are representative only, and depict the vision for Coyote Valley

Opposition:Sierra Club and other environmental protection groups are fighting to preserve “one of the last vestiges of Santa Clara County's agricultural heritage.” From SJ Mercury News: City proposes paving over agricultural Coyote Valley with a new satellite town with 80,000 residents - equivalent to a new Mountain View . . . Half of the existing farmland would be developed for urban uses . . . Yet this is the city and developers' so-called "green plan."

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Overarching Considerations

Are sustainability and economic growth inherently in conflict?What is the relationship between sustainability and free markets?

Inherently in conflict?Can free markets drive sustainability?What characteristics of free markets would we need to have in order to be confident that markets could deliver sustainability?

No externalities across time and space (at least need all “goods” priced to account for externalities)Perfect information on value of all market and non-market goods and services, including ecosystem servicesPerfect information on the preferences and technologies of future generations(This is still an anthropocentric view)

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Thank you!!

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Goals for the lecture

Establish basic guiding principles for sustainabilityConsider applications to buildings, businesses, and communities

Understand the role of public policy for sustainabilityWhat are the market failures that need to be corrected?Other rationale for regulation/intervention

(is free-market capitalism the assumed starting point?)

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Standards for Buildings

In Europe, building standards are very strict, requiring developers to meet certain energy efficiency standards

Natural lightNatural ventilationShielding of sunlight for natural cooling

(considerations in Europe include high energy costs and relative land scarcity)

In the United States we have LEED standardsMandatory for federal buildings, voluntary for private development

(link)

sustainability: some thoughts

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