Mean or Green?

This weeks Economist has an article, Tilting at Windmills, that discusses the boom in investing in renewable energy technology companies. There are some interesting comments, including a reasonable one that suggests $50/barrel for crude oil is the tipping point that makes alternative energy viable, we've been at that price since early 2005.

This thought process, "at what point does it make economic sense to invest in a substitute product sector?" should be a pretty common piece of analysis in the corporate procurement world.

In the spring of this year I spoke to several hundred members of a material management organization that is largely made up of government sector buyers. It was an interesting experience as they work in a sector where policy often trumps reason. The range of policy objectives and interest groups that are factored into procurement decisions include small business, green procurement, aboriginal business, regional diversity, industry lobby groups, linquistic diversity, industrial policy, safety standards, etc. I challenged the group to consider which of these policy objectives could be supported through cost/benefit or other economic analysis.

In many cases "green procurement" can and does make good procurement sense. Here are a few examples:

• a well-known global clothing retailer saved over 50% of their waste removal costs by removing cardboard (OCC) from the waste stream and generating revenue from recycling
• Low-rise commercial buildings can install various technologies to pre-condition air prior to it reaching the roof-top HVAC unit. Typically these are heat-exchange units that capture the thermal value of outgoing chilled or heated air (depending on the season) prior to expelling the air. Economic payback is often 3-5 years, while government subsidies often substantially shorten that period.
  
• including VPN capability into your secure network design adds cost, but it can enable staff to work from home, cascading into lower facility costs, and incidentally removing some carbon load from commuter traffic
• In many office environments there is little thought given to the number and capacity of the printers and copiers. A recent study I looked at for two multi-story office towers showed that there were about 30% too many printers and copiers. Not only does this mean capital and maintenance costs are higher than necessary, there is a two-order impact on energy consumption. First the surplus machines consume energy, and second they generate substantial heat that requires additional energy to cool the office environment.
  

In every procurement decision I look at, I encourage the team to consider the entire "life cycle" cost of their decisions. What constitutes the entire life cycle cost is a whole other topic.