1 © UNEP Financing Cleaner Production and Energy Efficiency Projects Presentation of the Energy Efficiency Guide for Industry in Asia

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<ul><li> Slide 1 </li> <li> 1 UNEP Financing Cleaner Production and Energy Efficiency Projects Presentation of the Energy Efficiency Guide for Industry in Asia </li> <li> Slide 2 </li> <li> 2 UNEP Hello! </li> <li> Slide 3 </li> <li> 3 UNEP 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 Participant introductions </li> <li> Slide 4 </li> <li> 4 UNEP Lecture Waste and Cleaner Production Cost identification and estimation LUNCH BREAK Capital budgeting and project profitability Project funding Workshop exercise Risks of waste Cost identification for waste Cost estimation for waste Calculating cash flow and simple payback Calculating NPV What the bank will consider Workshop overview 9.00 10.30 12.30 14.00 16.30 </li> <li> Slide 5 </li> <li> 5 UNEP WASTE AND CLEANER PRODUCTION </li> <li> Slide 6 </li> <li> 6 UNEP Waste and Cleaner Production What is waste? Anything that leaves the company not as product! It costs money and it can be prevented! </li> <li> Slide 7 </li> <li> 7 UNEP Materials, Energy, Water, Labour, Capital Products, By-Products Solid Waste Waste Energy, Wastewater Air Emissions Waste and Cleaner Production Waste takes many forms </li> <li> Slide 8 </li> <li> 8 UNEP Waste and Cleaner Production Exercise 1 (10 min) Write down the risks associated with waste from the perspective of: Management of a company Government Investors </li> <li> Slide 9 </li> <li> 9 UNEP Waste and Cleaner Production The Cost of Waste Iceberg THE HIDDEN COST OF WASTE Company Image Liability Regulatory Compliance Treatment &amp; Disposal Lost Raw Materials, Energy, Labor 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. </li> <li> Slide 10 </li> <li> 10 UNEP Waste and Cleaner Production The costs of waste ink at 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: $819lost raw materials (ink, thinner) $369corporate waste management activities $50 disposal $47 internal waste handling activities $16 hazardous waste tax </li> <li> Slide 11 </li> <li> 11 UNEP Waste and Cleaner Production Dilute &amp; disperse Dispersion Pollution Control Recycling Pollution Prevention Sustainable Development 196019801990 Complexity of Environmental Issue Cleaner Production </li> <li> Slide 12 </li> <li> 12 UNEP Waste and Cleaner Production End of Pipe treatment Dispersion Treatment Recycling Pollution Prevention Sustainable Development 196019801990 Complexity of Environmental Issue Cleaner Production </li> <li> Slide 13 </li> <li> 13 UNEP Waste and Cleaner Production Off site recycling Dispersion Pollution Control Recycling Pollution Prevention Sustainable Development 196019801990 Complexity of Environmental Issue Cleaner Production </li> <li> Slide 14 </li> <li> 14 UNEP Waste and Cleaner Production Prevention Dispersion Pollution Control Recycling Pollution Prevention Sustainable Development 196019801990 Complexity of Environmental Issue Cleaner Production </li> <li> Slide 15 </li> <li> 15 UNEP Waste and Cleaner Production CP definition Integrated, preventative, continuous strategy Products, production processes or services Reduce risks to humans and environment and increase profits! or waste minimization, pollution prevention, eco-efficiency </li> <li> Slide 16 </li> <li> 16 UNEP Reduced material use and waste Reduced costs &amp; increased profits Increased productivity Enhanced reputation Reduced liability risks Waste and Cleaner Production CP benefits: reduced risk! </li> <li> Slide 17 </li> <li> 17 UNEP Waste and Cleaner Production CP strategies Prevention of waste generation: - Good housekeeping - Input substitution - Better process control - Equipment modification - Technology change - On-site recovery/reuse - Production of useful by-product - Product modification </li> <li> Slide 18 </li> <li> 18 UNEP COSTENVIRONMENTAL PERFORMANCE COSTENVIRONMENTAL PERFORMANCE End of pipe Treatment Cleaner Production Waste and Cleaner Production CP versus End of pipe </li> <li> Slide 19 </li> <li> 19 UNEP Waste and Cleaner Production Cleaner Production and EMS CHECK ACT DO REPORT PLAN CP </li> <li> Slide 20 </li> <li> 20 UNEP Waste and Cleaner Production CP Methodology Step 1 Step 2 Step 3 Step 4 Step 5 Get organized Analyze processes Identify CP options Carry out feasibility analysis Implement and measure results At what steps do you need cost data? Step 6 Integrate in business processes </li> <li> Slide 21 </li> <li> 21 UNEP COST IDENTIFICAITON AND ESTIMATION </li> <li> Slide 22 </li> <li> 22 UNEP Cost identification and estimation Step 2: Analyse processes Prepare process flow charts Collect baseline data and observations Material balance: determine true waste! Assign costs to materials, energy and waste </li> <li> Slide 23 </li> <li> 23 UNEP A mid-sized manufacturer of food packaging materials Major manufacturing steps are Printing, Laminating, and Slitting Waste management includes incineration and wastewater treatment Cleaner Production has reduced volume of solid scrap and the annual cost of waste Cost identification and estimation Case study: the PLC Company </li> <li> Slide 24 </li> <li> 24 UNEP Cost identification and estimation Materials flow chart at PLS Company product INVENTORY SLITTING solvent air emissions solvent air emissions printed laminated film plastic film, ink plastic film, aluminium film, adhesive PRINTING LAMINATION Liquid waste ink Solid scrap to waste management to waste management Solid scrap printed film </li> <li> Slide 25 </li> <li> 25 UNEP solid scrap from printing, laminating, slitting steps fuel and fuel additive fresh water air emissions dirty scrubber water OFF-SITE LANDFILL INCINERATOR WASTEWATER TREATMENT Waste water treatment chemicals air emissions Cleaner water to a nearby stream ash sludge liquid ink waste from printing step Cost identification and estimation Materials flow chart at PLS Company </li> <li> Slide 26 </li> <li> 26 UNEP MANUFACTURING PROCESS INPUTS PRODUCT NON-PRODUCT OUTPUT (WASTE) Cost identification and estimation Materials Balance Physical analogy to financial balance sheet Compares all material inputs and outputs Identifies sources of waste and data gaps Provides basis for cost evaluation </li> <li> Slide 27 </li> <li> 27 UNEP Walk-through &amp; interviews Cost checklists (generic &amp; sector/process specific) see handout C2 Activity Based Costing (ABC), costs are allocated from overhead accounts To processes, products, or projects that actually generate costs Based on activities with a direct relationship to cost generation Check accounting records External expertise for less tangible costs, e.g. Insurance sector liability estimation Marketing firms value of company image Environmental agencies estimates of current and future regulatory compliance costs Cost identification and estimation Other tools </li> <li> Slide 28 </li> <li> 28 UNEP How do you know if a relevant cost or savings is quantitatively significant before you go ahead and quantify it? You dont. Try to do at least a rough, first-cut estimate of all quantifiable costs then decide whether or not refining the estimate is worth the effort. Do a balancing act! Cost identification and estimation To quantify or not to quantify? </li> <li> Slide 29 </li> <li> 29 UNEP Cost identification and estimation Exercise 2 (10 min) List costs of waste management at PLS Company (There are three categories of costs: The cost of manufacturing inputs The cost of waste management Less tangible costs) </li> <li> Slide 30 </li> <li> 30 UNEP Cost identification and estimation Costs of waste at the PLS Company The total cost of waste due to the generation of solid scrap during print runs was estimated to be US$213,000 per year, including: Cost of lost direct manufacturing inputs (e.g, plastic film, ink, energy, labour) Cost of waste management (e.g., incinerator operation, wastewater treatment plant operation, final waste disposal) </li> <li> Slide 31 </li> <li> 31 UNEP Cost identification and estimation Problematic accounting practices? Various costs at a facility might be... Hidden in the accounting records Misallocated from overhead accounts Classified as fixed when they are really variable, or semi-variable Not found in the accounting records at all (Can you think of others?) </li> <li> Slide 32 </li> <li> 32 UNEP Material loss per the accounting records Actual material loss Hidden costs of lost raw materials Manufacture of plastic rear panels for automobiles (as % of input materials) Adapted from: Rooney, Charles. Economics of Pollution Prevention: How Waste Reduction Pays. Pollution Prevention Review.Summer 1993. </li> <li> Slide 33 </li> <li> 33 UNEP Hidden costs of lost raw materials at the PLS company The PLS accounting records show: The amount of raw materials used The amount of final product shipped But the records do not show: The amount of solid scrap waste generated The amount of any other lost raw materials </li> <li> Slide 34 </li> <li> 34 UNEP Direct costs can be easily traced to a unit of product (e.g., direct materials, direct labour) assigned directly to the process, product, or project responsible for generating the cost Cost identification and estimation Direct costs vs. indirect costs Indirect costs cannot be traced as easily to a unit of product (e.g., facility energy use, insurance, maintenance, waste treatment) assigned to facility, division, or company overhead accounts (varies per company) Often hidden Often include environmental costs!!! </li> <li> Slide 35 </li> <li> 35 UNEP Source: Green Ledgers: Case Studies in Corporate Environmental Accounting. World Resources Institute. May 1995. Indirect Environmental Management Costs hidden in an overhead account Product Manufacturing Cost Statement Variable Costs Raw Materials Intermediates Additives Utilities Direct Labour Packaging Wastewater Treatment $2.27/lb. $0.87/lb. $0.41/lb. $0.96/lb. $11.32/lb. $10.31/lb. $9.14/lb. $0.04/kW-h $0.07/kW-h $27.40/hr $31.43/hr. $0.60/pkg. $0.57/pkg $0.01/gal. Fixed Costs Supervisor Fixed Labour Depreciation Divisional Overhead General Services &amp; Administration $4,600 $57,800 $1,227 $13,662 $1,294 Total Variable Cost Total Fixed Cost Total Manufacturing Cost Total Cost legal expenses environmentally driven R&amp;D permitting time and fees environmental training Fixed Costs Supervisor Fixed Labour Depreciation Divisional Overhead General Services &amp; Administration </li> <li> Slide 36 </li> <li> 36 UNEP Survey of industry accountants in the US Findings: Environmental management costs (such as waste handling, treatment, and disposal) predominantly assigned to overhead accounts Even energy and water costs (manufacturing inputs) are usually assigned to overhead accounts Source: Environmental Capital Budgeting Survey. Tellus Institute, for U.S. EPA, June 1995 </li> <li> Slide 37 </li> <li> 37 UNEP Cost identification and estimation Exercise 3 (10 min) Calculate the aluminium and plastic film loss during the slitting step of the process: Amount in km / year Costs in $ / year (Hint: virgin material input = finished product + waste scrap) </li> <li> Slide 38 </li> <li> 38 UNEP Cost identification and estimation Problematic accounting practices? Various costs at a facility might be... Hidden in the accounting records Misallocated from overhead accounts Classified as fixed when they are really variable, or semi-variable Not found in the accounting records at all (Can you think of others?) </li> <li> Slide 39 </li> <li> 39 UNEP Costs initially assigned to overhead accounts are usually allocated back to processes, products, or projects using an allocation basis such as Quantity of raw materials used Production volume Machine hours Labour hours Floor space Cost identification and estimation Cost allocation </li> <li> Slide 40 </li> <li> 40 UNEP Solid scrap waste Treatment and disposal costs Printing Laminating Slitting How would you allocate? On the basis of: # of set-up runs? raw materials use? machine hours? amount of scrap? some other basis? Allocated from overhead Cost identification and estimation Cost allocation </li> <li> Slide 41 </li> <li> 41 UNEP Cost identification and estimation Problematic accounting practices? Various costs at a facility might be... Hidden in the accounting records Misallocated from overhead accounts Classified as fixed when they are really variable, or semi-variable Not found in the accounting records at all (Can you think of others?) </li> <li> Slide 42 </li> <li> 42 UNEP Fixed Costs - do not vary with production level or other factors e.g., equipment depreciation, labour Variable Costs - do (or can) vary with production level or other factors e.g., raw materials use, energy use A cost considered fixed at one firm may be considered variable at another firm Cost identification and estimation Fixed vs. variable costs Cleaner Production aims to reduce variable costs </li> <li> Slide 43 </li> <li> 43 UNEP Incinerator operating costs at PLS include: Fuel, fuel additive Operating labour Trucking ash to landfill Equipment depreciation costs PLS views these waste treatment costs as essentially fixed costs do you agree? Cost identification and estimation Fixed vs. variable costs (cont.) </li> <li> Slide 44 </li> <li> 44 UNEP Cost identification and estimation Problematic accounting practices? Various costs at a facility might be... Hidden in the accounting records Misallocated from overhead accounts Classified as fixed when they are really variable, or semi-variable Not found in the accounting records at all (Can you think of others?) </li> <li> Slide 45 </li> <li> 45 UNEP Future costs Future variable costs, e.g., landfill fees Future fixed costs, e.g., future depreciation costs of new waste treatment equipment Less tangible costs Lost profit from reduced production throughput Managing impact of waste on reputation Cost identification and estimation Costs missing from accounting records Remember: future fixed costs are not fixed yet! Cleaner Production now can reduce the size &amp; cost of treatment equipment that you may have to purchase in the future </li> <li> Slide 46 </li> <li> 46 UNEP Purchasing Materials Control Inventory Operations Quality Control Shipping Maintenance Engineering Purchasing Materials Control Inventory Operations Quality Control Shipping Maintenance Engineering Environment, Health, &amp; Safety Board Legal Research &amp; Development CEO Production Accounting &amp; Finance Sales &amp; Marketing Cost identification and estimation So where do we get out data from? Chec...</li></ul>