A Pragmatic Response to Climate-change Regulation

April 5, 2010
For manufacturers, utilities and others, a strategic approach to regulatory compliance can make good business sense.
Like it or not, climate-change initiatives and regulatory mandates are increasingly becoming part of the manufacturing operating environment. Retail giant Wal-Mart Stores Inc. recently announced plans to eliminate 20 million metric tons of greenhouse gas (GHG) emissions from its global supply chain by 2015, for example, a move that appears certain to shake up the way that many of its suppliers do business. The company also announced last year an environmental labeling program by which suppliers will be required to track and report on carbon emissions, water usage and other environmental factors for the products they supply.“Some people are saying that Bentonville (Wal-Mart’s Arkansas headquarters) is actually having more impact on the retail and consumer goods sectors than Washington, D.C.,” observes Stephane N’Diaye, a San Francisco-based senior manager for the sustainability practice of Accenture, the global consulting firm.But Washington is doing its part as well. Recently enacted Environmental Protection Agency (EPA) rules now require companies that emit more than 25,000 metric tons of carbon dioxide equivalents (CO2e) per year to report those emissions annually to the EPA. Under the rules, known as 40 CFR Part 98, GHG emission data collection was mandated to begin on Jan. 1 this year, with first reports due March 31, 2011.The new EPA rule is believed to cover about 85 percent of the nation’s GHG emissions, and applies to roughly 10,000 facilities. There is currently no requirement to curtail carbon GHG emissions. But the new reporting mandate is seen by some as a move to establish a “baseline” for later U.S. cap-and-trade or carbon tax laws, should such legislation be passed.Right for businessGiven growing environmental consciousness and the heightening regulatory environment, how should manufacturers respond, not only from a tactical or reactionary stance aimed at compliance, but also from a longer-term strategic perspective?“Strategically, irregardless of regulatory issues, companies need to start taking a look at how they’re approaching their energy usage and generation,” declares Chip Rennie, director, global industrial energy, for Emerson Process Management, the Austin, Texas-based automation supplier. It simply makes good business sense, he says, for large energy users to take a detailed look at ways to either reduce their energy consumption or to make their production more efficient.Energy has become one of the largest components of the cost of manufacturing, after labor and raw materials, Rennie points out. “Any time you can increase your efficiency and reduce your energy consumption, you reduce your carbon footprint,” Rennie says. Yes, it may be the right thing to do for the planet, he allows. “But it’s also the right business thing to do.”Indeed, manufacturers, in particular, are being driven by business interests to reduce their carbon footprints as much as they are by regulatory pressures, contends Marianne Hedin, an industry analyst for Pike Research, Boulder, Colo., a clean-technology research firm. Industry sectors such as utilities, government, retail and transportation are feeling pressure to comply with the new EPA ruling, which is also “a huge driving force for the manufacturing sector,” she adds.But even before the EPA ruling and the recent actions by Wal-Mart, manufacturers were also feeling pressure to “go green” from their customers and shareholders, she points out. “They were worried about what consumers were thinking about their products, and what their brand image was. So that’s been driving a lot of their behavior around carbon management,” says Hedin, the author of a recent Pike Research report on carbon management software and services (See “Galloping Growth for Carbon Management”).To be sure, as manufacturers consider the new EPA rules and other environmental mandates, they must understand how their businesses can be impacted by regulations, says Accenture’s N’Diaye. But they must also look beyond just compliance, he advises. “There is a huge opportunity for companies to strategically think about sustainability and what benefits they can get out of it.” Sustainability has definitely moved to a place among the top 10 concerns of many manufacturing chief executive officers (CEOs), N’Diaye observes.Pragmatic
Consider Celanese Corp., the $5 billion Dallas-based manufacturer of specialty and intermediate chemicals. In the company’s recently released 2009 Sustainability Report, CEO David Weidman describes the Celanese approach to environmental stewardship as “pragmatic and business-focused.” One recent example came at the company’s Bishop, Texas, plant, where two projects reduced the site’s energy consumption by more than 34,000 MMBTU (million British thermal units), while also cutting GHG output by almost 2,000 tons of CO2. Over time, the full annual savings is expected to total more than 130,000 MMBTU of energy and more than 7,500 tons of CO2 annually. “That’s a savings of close to $1 million a year,” points out Ed Quick, Celanese global director, environmental health and safety.At Celanese, sustainability considerations play a major role in technology and capital investment strategies. That was the case in December 2008, when Celanese shut down its Pampa, Texas, plant that relied on 60-year-old butane oxidation technology. That plant’s production was shifted to a Celanese acetic acid plant in Nanjing, China, opened in mid-2007, which uses the company’s proprietary, and much more energy-efficient, AOPlus production technology. Celanese had earlier considered an investment to update the outdated Pampa plant technology. “But when we looked to the future, we decided we had to establish a presence in China,” says Quick. “And we went into China with state-of-the-art technology, which allowed us to make the difficult decision of shutting down a facility.”In making the production shift to China, Celanese not only significantly boosted its presence in an important geographic region, but it also did right by the environment, as well as its bottom line, according to Quick. The Nanjing plant uses 12 times less energy than the much older Pampa plant, while greenhouse gas and air emissions are reduced by five times and 12 times respectively, the company says, along with a 25-times reduction in waste generation.On the environmental regulatory front, Quick says that it pays to look ahead. “You’ve got to look out over the next five to 10 years and have some understanding of where your customers and your other stakeholders are going, and what some of the impacts are that are going to affect you,” he observes. “There’s always a lot of uncertainty with that, but you have to develop a strategy around it, make sure it’s aligned with your values and then continue to push forward.”The company is finding that this kind of effort produces value for Celanese, both on the bottom line and otherwise. “In some cases, it allows us to see ahead and see that there are going to be some changes in requirements. Instead of being right up against some regulatory deadline, it gives us time to do the work three, four or five years ahead of time and get ready for something that may affect us,” Quick explains.Among other things, Celanese recently began a more aggressive effort to perform carbon life-cycle analysis (LCA) on its products, says Quick. The company has formed a global team to develop a tool that will calculate a product’s carbon footprint, providing a “cradle-to-grave” analysis of its carbon cost. “In some cases, customers haven’t requested that information yet, and in some cases, they have,” Quick observes. “Our intention is to try and have that information available before the customer requests it.”An added advantage of this kind of work can come through discovery. Earlier Celanese LCA efforts revealed that certain of the company’s products actually have carbon footprints that are 40 percent lower than competitors’ products, Quick notes. “So there have been some marketing opportunities that have opened up from using this LCA technique.”The new EPA greenhouse gas reporting rules provide another example of how working ahead of the rules can pay dividends. Due to earlier initiatives by the company, the GHG reporting mandate has required only minor internal changes at Celanese to ensure that the proper reporting systems are in place, Quick reports. Looking forward, he adds, “the energy reductions that we’ve already undertaken and the improvements we’ve made certainly do position Celanese much more favorably than companies that are taking a more regressive approach.”Accenture’s N’Diaye reports that the readiness of manufacturers to comply with the EPA GHG reporting rules varies widely. While some companies already have technologies in place to measure emissions, many are still relying on spreadsheets, he says. “Microsoft is probably one of the largest providers of environmental reporting systems, just because many organizations are still at the stage where they have lots of Excel spreadsheets flying around that people are trying to consolidate somewhere, to try and understand where the company is.” This approach leaves much to be desired, N’Diaye warns, because “a lot of the data quality is low, and the timeliness is less than what is needed right now.”Not surprisingly, a growing number of vendors are rolling out enterprise-level solutions to help companies meet the new EPA rules and better manage their carbon footprints. One such supplier is Enviance Inc., a 10-year-old Carlsbad, Calif.-based supplier of cloud-based environmental management software solutions delivered remotely via the Internet. The firm counts a number of major industrial companies among its customers, including Chevron, Dupont and American Electric Power (see “Reducing Regulatory Risk”).Lawrence Goldenhersh, Enviance president and chief executive officer, confirms that a large number of companies are ill-prepared to meet the compliance requirements imposed by the new EPA reporting rules. A recent Enviance survey conducted at a major conference of electric utility companies, for example, found that 61 percent lack systems in place to record carbon emissions, Goldenhersh says. The Enviance response is its 60-day Greenhouse Gas FastTrack program, announced on March 9. The FastTrack solution relies on a library of more than 130 preconfigured data collection and calculation models for stationary sources such as boilers, heaters and “anything you can imagine that produces CO2 and sits inside a fence line,” says Goldenhersh. These, combined with more than 100 mobile source models and others can be put in place as part of a complete, cloud-based GHG management system that can be up and running in 60 days or less to enable EPA reporting compliance, he contends.The FastTrack program is offered on a fixed-price basis at $1,995 per month per facility, with multiple-facility discounts, according to Goldenhersh. This includes full implementation, consulting and online training for data entry, dashboards and reporting, the company says.SAP tooAnother company in the hunt is SAP AG. While the Walldorf, Germany-based enterprise software giant is known for its extensive on-premise software solutions, SAP in May last year acquired Clear Standards, a Sterling, Va.-based provider of on-demand, or cloud-based, emissions management tools and services. The Clear Standards offering is now known as SAP Carbon Impact. SAP has expanded the scope of the product since the acquisition, including some data integration with SAP’s enterprise resource planning (ERP) line, says Marty Etzel, SAP vice president, sustainability solutions. But Carbon Impact is still delivered by SAP as an on-demand solution over the Web, he says. Among other things, SAP Carbon Impact enables companies to collect and analyze their GHG emissions based on different intensity factors, Etzel notes. This allows users to make carbon footprint comparisons between different factories or offices, for example, and identify different opportunities to reduce their carbon emissions, along with the financial consequences of each.Carbon Impact includes features for non-regulatory GHG reporting from a single data repository to voluntary programs such as the Carbon Disclosure Project and the EPA Climate Leaders Program. But the solution is also well suited for reporting under the new EPA reporting mandate, Etzel says. “And that’s what we’re seeing customers taking an interest in,” he adds. “We’re working with several customers on how Carbon Impact is configured for this.”Good measureWithout good measurements, of course, the effectiveness of carbon management software is limited. And the suppliers of instrumentation products are also taking aim at the market. Sierra Instruments, Monterey, Calif., for example, recently introduced a line of mass flowmeters that the company says it has self-certified for GHG reporting.Process automation suppliers such as Honeywell Process Solutions (HPS), Phoenix, are also ramping up their services on the GHG reporting front. For smaller to mid-size manufacturers, in particular, the EPA rules “can be a little bit daunting, just because companies don’t have a lot of spare manpower to go after this kind of thing,” says Brendan Sheehan, HPS senior marketing manager, industry verticals. HPS has taken the time to understand the details of the extensive EPA rules, says Sheehan, adding “we want to be one of the sources that people can come to for help in figuring out what it is they need to do.”Related Sidebar - Galloping Growth for Carbon ManagementTo read the article accompanying this story, go towww.automationworld.com/feature-6824.Related Sidebar - Reducing Regulatory RiskTo read the article accompanying this story, go towww.automationworld.com/feature-6825

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