Sustainability – Two Key Themes

9 January 2014

 

Sustainability, like Globalization, substantially expands the scope of affairs that demand constant management attention. Sustainability, in particular, adds a broad range of potential opportunities and concerns to the daily mix of the important and the urgent. This post looks at the present state of a two key themes in Sustainability as it applies to manufacturing.


Global Warming: A Status Report

The U.N. Framework Convention on Climate Change — the group charged with reaching a global agreement on CO2 emissions reductions — met for the umpteenth time last summer in Warsaw. There was little substantial progress toward reaching agreement on emissions reductions, and possibly even less progress toward funding a $100 billion program under which developed countries help less developed countries cope with the future effects of global warming.


Global Warming SurveyLate last year, the Pew Trust for People and the Press updated its annual survey of American voters’ opinions on Global Warming.[1]  The results didn’t change very much from the last several years. It remains that less than half of those surveyed regard Global Warming, caused primarily by human activity, as a fact. It also remains that opinions on Global Warming are strongly correlated to personal political views. Those who regard themselves as left-wing Democrats strongly agree that human activity is causing Global Warming, while right-wing Republicans overwhelmingly reject that premise. Those in between are, well… in between.


So, my view for the U.S. in 2014 is that: (a) there is, at present, little consensus for a binding international agreement to substantially reduce CO2 emissions, (b) Global Warming, as an issue, is politically polarized in the U.S., and (c) the U.S. has already reduced — and continues to reduce — CO2 emissions through energy conservation measures and through increased use of natural gas and renewable sources.


In brief: I don’t foresee a carbon tax or cap-and-trade scheme here in the U.S., at least not prior to the election next November. I do expect that manufacturers — and individuals — will continue to voluntarily reduce CO2 emissions through prudent investment in energy saving equipment and practices.


What the Frack?

The U.S. Department of Energy publishes an Annual Energy Outlook (AEO) that projects energy supply and demand information into the future. [2] The early release of AEO 2014 was published last month. The early release presents a “reference case”: a set of “best” projections to 2040, based on demographics, history and current technology, law and policy. The final AEO 2014, which will be released in a few months, will present alternate cases as well as the “reference case”.


I find it interesting to follow the changes in the “reference case” from year to year. This year, primary changes include a reduction in the projection for population growth rate in the U.S. and the growing impact of U.S. petroleum and natural gas production due to shale fracturing technology (“fracking”).


For manufacturers, the large increase in domestic supply of hydrocarbons (especially lower molecular weight hydrocarbons) that “fracking” provides matters in several ways:

  • The increased availability of domestic supply will help isolate U.S. users from petroleum price and availability shocks due to strife and political considerations abroad.
  • Migration to natural gas from other fuels relieves fuel handling and environmental emissions concerns. Natural gas burns clean, requires little boiler or furnace maintenance and emits significantly less CO2 per BTU than other fuels.
  • Natural gas is conveyed from well head to burner almost entirely by pipeline. This reduces fuel transport costs and essentially isolates natural gas from delivery delays due to severe weather. Since natural gas is easy to transport by pipeline and relatively expensive to transport by common carrier (as compressed or liquefied natural gas), natural gas is preferentially used locally — that is, gas produced in the U.S is most economically used within the U.S. or in adjacent countries where contiguous pipelines exist (Canada and Mexico).
  • The surge in natural gas production in the U.S., combined by the existence of a large network of transportation and delivery pipelines already in place in the U.S., means that the U.S. domestic price for natural gas is now decoupled from the world price for petroleum. This substantially lower delivered price for clean fuel (compared to world prices) provides an important competitive advantage for U.S. manufacturers. The advantage for manufacturers in energy-intensive industries (basic metals, for instance) is readily clear. Surprisingly (at least to me), the AEO 2014 projects an even larger competitive advantage for manufacturers in some less energy-intensive industries. According to the AEO 2014:

 

  • Further, natural gas, natural gas liquids and light petroleum crudes (as “fracked” crude oil is) provide low priced feedstock for materials derived from low molecular weight hydrocarbons. Since I am a long-time polymers guy, polyethylene, polypropylene and EPDM rubbers come immediately to mind. This means lower raw materials costs and lower energy costs (compared to world prices) for many smaller American manufacturers!

To beg the obvious: smaller manufacturing firms should be re-examining production processes as well as reconsidering existing and potential product offerings to take full advantage of the effects of “fracking”.


Chuck - NormandyThoughtful comments and experience reports are always appreciated.


…  Chuck Harrington
(Chuck@JeraSustainableDevelopment.com)


P.S
: Contact me when your organization is serious about pursuing Sustainability … CH


This blog and associated website (
www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.


 

[1] Pew Trust for the People and the Press: http://www.people-press.org/2013/11/01/gop-deeply-divided-over-climate-change/

 

[2] Energy Information Agency, U.S. Department of Energy, Annual Energy Outlook 2014, early release, December 2013, http://www.eia.gov/forecasts/aeo/er/?src=home-b4