23 March 2011 | Luca Del Buono
Finance/insurance, Europe

 

Efficiency gains are a clear indication of a businesses’ success. Through sustainable procurement, businesses are now able to benefit from meeting government policy while making efficiency gains.

Efficiency gains are normally measured by looking at the relationship between cost and earnings. If either costs go down while earnings remain flat or if costs are flat and earnings go up, companies are said to have made efficiency gains.

When looking at procurement, efficiency gains are a sign a company has implemented a sustainable procurement policy, using supply chains that prioritise the procurement of sustainable products and materials.

In addition, efficiency gains also play a vital role in business compliance with governmental legislation that regulates total carbon emission outputs in Europe where governments are aiming for 1 million tonnes of CO2 savings by 2020.

By incorporating whole-life costing into sustainable procurement policy it will lead to businesses accumulating efficiency-related profit.

This full life cycle includes the projected costs of use or maintenance as well as any retiring and recycling costs. By adding these whole life costs into existing strategies, businesses can make increasingly intelligent decisions regarding the long-term costs involved in procurement.

To fully appreciate the benefits of green procurement, it is vital that business leaders are aware of what exactly constitutes an efficiency gain. In broad terms, an efficiency gain can be:
·    A reduction of input for the same level of output
·    A reduction of price for the same level of output
·    An increase in the number or quality of outputs for the same level of input
·    An increase in the number or quality of outputs for a proportionately small increase in the level of input

When implementing green procurement and sustainable supply chains, however, businesses will also benefit from efficiency gains not directly related to the input/output ratio. For example, sharing best practice and increasing communication between the separate sections of a business or supply chain will ultimately increase the efficiency of that chain by allowing departments to work together to avoid excess cost or wastage.

An adherence to green procurement will also inevitably lead to a reduced carbon footprint as green procurement methods and practices become gradually prioritised over less environmentally-efficient methods within.

This, in turn, positively increases a company’s reputation as an energy efficient business among customers. However, in order to successfully reduce energy consumption, efficiency gains must be paired with a form of governmental intervention that reduces energy demand such as a green tax or cap-and-trade initiative.

In terms of CO2 output, efficiency gains are a vital tool with which businesses can record progress and thus comply with strict governmental legislation. In Europe, energy-intensive businesses  are legally required to report their CO2 levels under the EU Emissions Trading Scheme (EU ETS) that regulates self-imposed caps on carbon emissions.

Under the scheme a cap is put on the big polluters, limiting the amount of certain greenhouse gases that they are allowed to emit. Within this the companies then receive emission allowances that they can then buy and sell from one another where needed.

At the end of each year companies must surrender enough allowances to cover all of its emissions or face heavy fines. If a company reduces its emissions, it can keep the spare allowance to cover future need or sell them to another company.

The scheme is supposed to encourage businesses to cut emissions, as it costs them to keep emitting.

Other large organisations are required to provide similar reports under the terms of the Carbon Reduction Commitment (CRC) Emissions Trading Scheme.

The CRC covers polluters who are less energy intensive but still big emitters, around 10 per cent of UK businesses. It features reputational, behavioral and financial drivers aiming to encouraging better understanding of energy use.

Efficiency gains inherently reduce a business’ emissions. Any excess units of carbon already acquired under the cap-and-trade scheme that are not required can then be sold on carbon exchange markets to companies exceeding their emission allowances.

In addition all properties now require official assessments of their energy consumption. An Energy Performance Certificate (EPC) is rewarded after an energy survey takes place, rating the property on a scale from A-G.

For homeowners, this means as a house in sold, brought or rented, the prospective buyer or tenant must have access to the EPC.

For businesses, under the Energy Performance of Buildings directive, issued in January 2011, a Commercial EPC will be required upon construction, sale or lease for all non-dwellings. This will cover everything from retail units to offices, industrial units and large-scale commercial premises, including airports and public buildings.

The responsibility of enforcement in newly built properties will fall to Building Control, whilst Trading Standards departments will enforce certifying existing buildings.

Buildings occupied by public authorities or institutions must now also display a Display Energy Certificate (DEC) so the public can easily see the buildings’ energy efficiency.

Businesses that successfully accrue and then report their efficiency gains will find it much easier to comply with such regulations and will not be inhibited by any resulting fines or tariffs.

The relationship between efficiency gains and governmental legislation is essentially cyclical. To successfully accrue and then announce efficiency gains through emissions reduction reports is to make comprehensive steps towards full compliance with governmental legislation and cap-and-trade initiatives.

These regulations then allow excess units to be exchanged for extra capital which will, in turn, increases the chances of accumulating extra efficiency gains in the future. By actively seeking to accrue efficiency gains through sustainable supply chains, businesses will benefit not only financially, but also in terms of corporate and environmental improvements.

 

Image 1: pickinjim2006 | flickr

Image 2: Timothy Takemoto | flickr

Image 3: Shehal Joseph | flickr

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