Cool Companies, Part 1: How the best businesses boost profits and productivity by reducing GHGs
[Please send me any case studies of companies, buildings, and factories in the last 10 years that have cost-effectively reduced and carbon emissions. I am, as always, looking for well-documented cases where a systems approach to energy and carbon achieved deep savings and productivity gains.]
Ten years ago next month I published the first collection of detailed case studies, some 100 in all, of how businesses were cutting energy use and boosting productivity while reducing pollution: Cool Companies.
The few times that I have posted case studies here, many people have been surprised by the savings that real companies have achieved (see for instance the Dow Chemical energy contest results in “Energy efficiency, Part 2: The limitless resource” or “Car plant cuts energy costs $627,000 with 2-month payback (!) — with DOE help“).
The myth that reducing greenhouse gas emissions has a high cost for U.S. businesses is one of the greatest impediments to strong climate action. Yet all of the major economic studies of climate understand and model large potential savings (see “Intro to climate economics: Why even strong climate action has such a low total cost — one tenth of a penny on the dollar“) — although they haven’t modeled savings as large as the best companies have achieved. That macroeconomic analysis needs to be bolstered by more microeconomic success stories in order to be as compelling as possible.
In short, I think it is time once again to start publishing case studies. I ultimately plan to publish a number of new case studies. But for now let me start with some old ones. Sadly, the overwhelming majority of companies, buildings, and factories have still not done what the best did a decade ago as documented in my book. So the stories and strategies remain relevant. Let’s start with an overview of some the best cast studies:
Every company can significantly reduce its emissions of gases that contribute to global warming. A “cool” company will cut its emissions by 50 percent or more while reducing its energy bill and increasing productivity, with a return on investment that can exceed 50 percent and in many cases 100 percent.
Corporate carbon dioxide emissions come almost entirely from using energy generated from the burning of fossil fuels. About one-sixth of the nation’s carbon dioxide emissions come from energy used in commercial buildings. About one-third comes from energy used in manufacturing. Almost any company can reduce its emissions in two ways:
- Energy efficiency–achieving the same output of goods and services while reducing total energy consumption, and
- decarbonization-using energy that has lower emissions of carbon dioxide (what I call “cool” power.
Combining these two approaches will sharply reduce not only your carbon dioxide emissions. It will also drastically cut your emissions of sulfur dioxide, oxides of nitrogen (NOx), and particulates-primary components of urban air pollution, which inflicts serious harm to human health and the environment. These pollutant emissions have a market value. So, here is another good reason to become a “cool” company: You may be able to make money reducing these harmful air pollutants.
This book provides you with the strategies you need to boost profits and productivity while reducing greenhouse gas emissions. Each chapter begins with a discussion of the key components of the strategies and at least one representative case study.
CHAPTER TWO presents the case of Toyota Motors, a company that is obsessed with reducing waste and increasing productivity:
- One Toyota plant in California cut its total energy consumption by one-third while more than doubling its output with technology that helped reduce its defect rate from three per hundred to zero.
Defects were once accepted as inevitable and quality was viewed as expensive, but that changed in the 1980s and 1990s as U.S. manufacturers responded to the Japanese manufacturing challenge. Defects are now seen as a measure of inefficiency, and the goal is to prevent them from occurring in the first place. So, too, pollution is seen by our coolest companies as a measure of their inefficiency, rather than an inevitable by-product of production. The goal is to prevent pollution from occurring in the first place.
What is perhaps most striking about Toyota’s remarkable strategy for eliminating waste is that it has its origins with Henry Ford, who pioneered many of the best practices in both lean production and pollution prevention. I discuss Ford’s and Toyota’s thinking about lean production to explain why systematic efforts to reduce greenhouse gas emissions so often lead to productivity gains.
Lean thinking focuses on process improvement and prevention-oriented design strategies to reduce waste systematically. In this book, you will learn how to apply lean thinking to offices, buildings, and factories to minimize wasted energy. With this “cool and lean” strategy, your company will increase productivity at the same time as it reduces greenhouse gas emissions.
CHAPTER THREE begins the step-by-step “How To” for becoming cool. Since every company-service sector or manufacturing-has buildings, we begin with the proven strategies for making any building energy efficient. Cutting energy use by a quarter has been achieved in thousands of buildings. Hundreds of buildings have broken through the “25 percent savings” barrier. Cool buildings that cut energy use-and hence greenhouse gas emissions-in half are increasingly commonplace, as many of the examples in this chapter demonstrate:
- One small business in Seattle reduced the energy consumption in its two office buildings by 55 percent with a 1.5-year payback, and expects to raise that to 65 percent.
- The Ridgehaven office building in San Diego cut its energy consumption by 70 percent, saving $80,000 a year, using a “low-bid” contractor. Utility financing of the efficiency improvements turned a 3-year payback into an instantaneous payback.
- BlueCross BlueShield of Oregon cut energy use by 61 percent at its Portland headquarters. BlueCross did not have to put up any money for the project, which was financed by the local utility, but instead is paying for it entirely from the monthly energy savings.
A good rule-of-thumb for what a comprehensive efficiency upgrade can achieve today is an annual energy savings of $1 per square foot with a simple payback of two to three years-a return on investment (ROI) of 33 percent to 50 percent. (In this book, a one-year simple payback means a $1 investment that generates $1 in savings each year, which equates to a 100% ROI. If it generated $0.50 in savings each year, that would be a two-year simple back or a 50% ROI.)
By following the strategies in this book, you may be able to finance
some or all of the cost of your upgrade off-balance-sheet-letting you achieve savings without adding to your overall debt.
Stop thinking of energy efficiency as mundane. Whether you are a service sector or manufacturing firm, your employees work in buildings designed by people who probably had little understanding of the work that would be done in the building, and even less understanding of how to design a building to maximize their performance. We now know how to design a new building or upgrade an old one to reduce energy use and other operating costs, while at the same time reducing absenteeism and increasing worker productivity.
CHAPTER FOUR examines more than a dozen office and building designs that have boosted productivity from 5 percent to 15 percent, providing measurable benefits that can dwarf reductions in operating costs. While an upgrade that cuts energy use in half can save $1 per square foot in annual energy costs, it can generate more than $10 a square foot in new profits every year if it boosts productivity even 5%. Productivity gains have made it possible to achieve deep energy savings with paybacks of under two years-returns on investment (ROIs) exceeding 50 percent:
- VeriFone, a California manufacturer, renovated and daylit one of its buildings. The improvements that saved 60 percent of the energy would have paid for themselves in 7.5 years. The productivity rise of more than 5 percent and absenteeism drop of 45 percent brought the payback to under a year-a return on investment of more than 100 percent.
- A Georgia carpet manufacturer moved into an extensively daylit building and worker’s compensation cases dropped from 20 per year to under 1 per year.
Researchers at Carnegie Mellon University’s “Intelligent Workplace”–a must-see building for anyone designing a new or upgraded office-have begun to quantify these productivity improvements. They have systematically analyzed a large post-occupancy database of new buildings and retrofits. The researchers then estimated the benefits of design improvements for a 100,000-square-foot workspace with 500 employees. They concluded, for instance, that while improved lighting design would add $370,000 to the initial cost of the workplace, it would add $680,000 in value in energy savings and other reduced operating costs. Far more important, Carnegie Mellon has calculated that efficient lighting could provide a productivity benefit of $14.6 million.
Productivity-enhancing design requires a shift in your corporate thinking. Companies underinvest in their workplaces in part because they tend to see efficiency improvements as simple cost-cutting, which rarely motivates much management attention or capital spending. A key purpose of Chapter Four is to help managers see these investments as strategic productivity-enhancing investments crucial to their company’s long-term survival.
CHAPTER FIVE examines the work of two of the best energy-efficiency experts in the business: Ron Perkins and Lee Eng Lock. It explores how Perkins, Facilities Manager for Compaq in the 1980s, helped break down the traditional corporate barriers to strategic investment in buildings, and, with Lee Eng Lock, helped Compaq become one of the coolest of companies. We will then follow Perkins to Supersymmetry, an energy consulting company founded by Lee in Singapore, the benchmark for reducing energy consumption in semiconductor manufacturing.
- An integrated circuit factory outside of Manilla upgraded its lighting, heating and cooling system and cut the electricity usage per chip by 60 percent.
- In Malaysia, Western Digital built what is now considered the most efficient disc drive factory in the world, cutting energy consumption 44 percent with a one-year payback. These cuts were achieved even though plant floor space increased by more than 10 percent and air filtration requirements increased 1000-fold!
CHAPTER SIX looks at “cool” power. Just as every business from the service sector to manufacturing can improve the energy efficiency of its workplaces, so too can everyone choose energy sources that have lower emissions of greenhouse gases.
Part 2 will start with the “cool power” case studies and then go on to look at the best cases in the industrial sector.