Profiting fromCleaner Production:Day 1 For UNEP Division of Technology, Industry, and Economics Prepared by Tellus Institute Boston, MA USA
Course Background [15 min]
Development of the training materials Content has been developed by: • Tellus Institute • The Illinois EPA • The Philippine Institute of CPAs • The Asian Institute of Management • UNEP CP financing National Project Coordinators in Zimbabwe and Guatemala • UNEP Cleaner Production financing project team
UNEP: Financing Cleaner Production — Support • United Nations Environment Programme (UNEP); Division of Technology, Industry and Economics (DTIE) • Course support is from the project: “Strategies and Mechanisms For Promoting Cleaner Production Investments In Developing Countries” • Funding provided by the Government of Norway
Words of welcome Introduction of Instructors [15 min]
Participant Introductions [30 min]
Participant introductions Who is here today? • What type of organization do you work for? • e.g., industry, government, other • if from industry, which sector and what size • What are your job responsibilities and areas of expertise? • e.g., management, accounting, finance, engineering, production, environmental • What is your investment perspective? • e.g., developer of investment proposals, one who funds investment proposals
Why are you here? • What work issues or concerns motivated you to come? • What are your learning goals for this course? • What are your expectations of this course?
Course Overview [15 min]
Focus of this course • Cleaner Production • Cost Identification & Estimation • Project Profitability Assessment Also to incorporate your experiences, questions, and goals into the presentation, exercises, and discussions Case studies of Cleaner Production at real facilities will be used
Cleaner Production • The cost of waste • Profiting from Cleaner Production • Small group exercise on classifying environmental management options • CP implementation steps • Where to go for more information • CP planning at your organization
Cost identification and estimation • Small group exercise on cost identification • Problematic accounting practices • Potential sources of cost data • Small group exercise on cost estimation • Tools for data estimation • Cost identification and estimation at your organization
Project profitability assessment • Capital budgeting (of “environmental” projects) • Project cash flows and simple payback • The Time Value of Money (TVM) and Net Present Value (NPV) • Two small group exercises • Capital budgeting with inflation and tax • Sensitivity analysis • Key profitability indicators
Conclusion • Where to go for more information • Brief review of what we learned • Final questions and comments • Course evaluation
The Cost of Waste [15 min]
What is waste? • Some proactive companies view waste as: “any material or energy that leaves a process or facility in any form other than product” • A slightly less strict definition might be: “any material or energy that leaves a process or facility without first being used as efficiently as possible” • Definitions vary — but all companies generate waste!
Flow of materials & energy Air Emissions Materials, Energy, Water, Labour, Capital Products, By-Products Solid Waste, Waste Energy , Wastewater
Different types of waste There are many words for different types of waste: • allowance • BOD • broke • contaminated solids • core loss • customer returns • damage • drainings • dust • effluent • evaporation • furnace loss • greenhouse loss • hidden losses • leakage • non-conforming material • overfill • packaging • process loss • rework • second quality • stock loss • washings Adapted from: The Kaunas Institute of Technology, Kaunas, Lithuania
The true cost of wasteis often underestimated • For every $1 of waste cost that companies actually measure, another $2-3 of cost are” hidden” in the accounting records, or are not on the books at all • Companies typically underestimate how much waste really costs them, sometimes by several orders of magnitude • This applies even to big, well-managed companies
The cost of waste inkat the Southwire Company • The average disposal cost of a drum of hazardous waste ink was estimated as $50 • Upon closer inspection, the true cost was discovered to be $1300 per drum: • $819 lost raw materials (ink, thinner) • $369 corporate waste management activities • $50 disposal • $47 internal waste handling activities • $16 hazardous waste tax
The “Cost” Iceberg The true cost of waste can be like an iceberg, with only a small part visible THE HIDDEN COST OF WASTE Adapted from: Bierma, TJ., F.L. Waterstaraat, and J. Ostrosky. 1998. “Chapter 13: Shared Savings and Environmental Management Accounting,” from The Green Bottom Line. Greenleaf Publishing:England.
So how do we meltthe cost iceberg?...throughCleaner Production!Stay tuned...
Profiting from Cleaner Production [30 min]
Passive environmental strategies Dilute & disperse
Reactive environmental strategies end-of-pipe approaches
Proactive environmental strategies:Cleaner Production • Prevention of waste generation: • Good housekeeping • Input substitution • Better process control • Equipment modification • Technology change • On-site recovery/reuse • Production of a useful by-product • Product modification
Cleaner Production definition “The continuous application of an integrated preventive environmental strategy applied to processes, products, and services to increase overall efficiency and reduce risks to humans and the environment.” (UNITED NATIONS ENVIRONMENT PROGRAMME)
Properly implemented CP: always • reduces long-term liabilities which companies can face many years after pollution has been generated or disposed at a given site
Properly implemented CP: usually • increases profitability • lowers production costs • enhances productivity • provides a rapid return on any capital or operating investments required • increases product yield • leads to the more efficient use of energy and raw materials
Properly implemented CP: often • avoids regulatory compliance costs • leads to insurance savings • provides enhanced access to capital from financial institutions and lenders • is fast and easy to implement • requires little capital investment
CP versus End-of-Pipe approach • CLEANER PRODUCTION • Continuous improvement • towards use of closed loop or continuous cycle processes • Partnerships are essential: everyone has a role to play in the community • Elimination of environmental problems at source • Involves new practices, attitudes and management techniques and stimulates technical advances • POLLUTION CONTROL and WASTE MANAGEMENT • One-off solutions to single problems • Processes result in waste materials for disposal Solutions are often developed by experts in isolation • Reactive responses to pollution and waste after they are generated (e.g. via waste treatment equipment and methods) • Relies mainly on technical improvements to existing technologies
What is not CP? • Off-site recycling • Transferring hazardous wastes • Waste treatment • Concentrating hazardous or toxic constituents to reduce volume • Diluting constituents to reduce hazard or toxicity
What are the benefits of Cleaner Production? Improving environmental situation Continuous environmental improvement Increasingeconomical benefits Gaining competitive advantage Increasing productivity
CP motivators and drivers • - Improvements in • productivity and competitiveness • - Environmental management systems and continuous improvement • - Environmental leadership • - Corporate environmental reports and Environmental accounting INTERNAL to the COMPANY:
CP motivators and drivers EXTERNAL to the COMPANY: - Innovative regulation - Economic incentives - Education and training - Buyer – supplier relations - Soft loans from Financial institutions - Community involvement - International trade incentives
Team for CP success • Managers, engineers and finance people in industryandcommerce, in particular those responsible for business strategy, product development, plant operations and finance • Government officials, both central and regional, who play an important role in promoting CP • Media representativeswho play an important role in disseminating information on good environmental practice
Small Group Exercise:Classifying Environmental Management Options [30 min]
Exercise instructions • Introduction (5 min.) • Read and evaluate the two company cases detailed in your handout (10 min.) • Discuss your answers with the other small groups and the instructor (10 min.) • Lessons learned (5 min.) Refers to the handout “CP3Exercises” throughout the course
Preview: Cleaner Production at a case study facility called “PLS” [5 minutes] • A medium-sized company selling printed food packaging materials (such as potato-chip bags) • They print product labels directly onto the film material, and then the customers make the final package
Cleaner Production at the PLS Company • PLS implemented two CP projects to reduce wasted solid scrap during print runs • A quality control (QC) camera project to reduce waste from errors when printing • An on-site scrap recycling project to reduce waste from start-up runs
CP projects’ profitabilityat the PLS Company • The two CP projects in combination reduced solid scrap by about 45% • Total initial investment: • US $ 105,000 • The resulting annual savings: • US $ 96,900 • More details to come later...
CP Implementation Steps [30 min]
Planning for Cleaner Production: Six steps to savings Step 3 Step 1 Step 5 Identify and evaluate CP alternatives Implement projects Get organized Step 2 Step 4 Step 6 Analyze processes Secure project financing Measure progress Adapted from: A Guide to Pollution Prevention for New Hampshire Businesses. January 1999.N.H Department of Environmental Services.
Step 1 — Get organized • Get management support for Cleaner Production • Form a planning team • Seek input from personnel at all levels
Step 2 — Analyze processes • Take a close look at each production step • Map flows of materials, energy, waste, activities • Determine the true cost of waste generation • Prioritise losses and target your CP efforts
Step 3 — Identify & evaluate CP options • Get at the root cause of the problem • Be creative • Generate lots of ideas • Determine which alternatives are feasible • Select best alternatives for implementation