I find the trade-offs that arise in energy development, environmental protection and human health fascinating. Over the years I’ve written on this topic a few times:

Energy Technologies and Unintended Consequences

Unintended Consequences, Part II: Air vs. Water

Unintended Consequences, Part III: Electricity vs. Water

Today I want to talk about a 160,000 square-foot new water treatment facility in New York that will be going online this year, and how it’s giving us safer water at the cost of a hefty increase in greenhouse gas emissions. I’m referring to the Catskill/Delaware Ultraviolet Light Disinfection Facility, which is in the final stages of construction just north of New York City. The facility will use ultraviolet light to disinfect an average of 1.3 billion gallons of water per day. It’s also going to use a lot of electricity and, as a result, increase greenhouse gas emissions.

Source: NYC Dept. of Environmental Protection

The consequences of this project are neither unintended nor unforeseen. The project was required by Federal and State regulations to maintain the safety of New York City’s water supply, which is one of only a handful of major water supplies in the U.S. that remain unfiltered, according to civil engineer Robert Osborne, who is very into water. Having an unfiltered water supply is a kind of badge of honor. It means your water is exceptionally pure. But Federal and state regulations require water supplies to be protected by other means if filtration is not used. (The New York Times reported that a filtration system for this water supply would have cost up to $8 billion to build millions of dollars a year to operate.)

A project of this magnitude, whose costs are estimated at $1.6 billion, undergoes detailed analysis and planning, including an the creation of an environmental impact statement. The environmental impact statement says that the plant will draw an average of 4.45 megawatts of electric power. By my calculations (4.45MW X 24 hours X 365.25 days X 1000), that will equal about 39 million KWh of electricity annually.

You can calculate the amount of greenhouse gases emitted to provide 39M KWh of electricity in New York using EPA’s eGRID methodology (available via a cool tool on amee.com). Using my assumption, it comes to over 25,000 metric tons of CO2 equivalent. Taking the EPA’s estimate of the average annual greenhouse gas emissions of an average automobile (5.1 metric tons of CO2E per year) you find that these emissions are the equivalent of putting about 5,000 more cars on the road.

I have no doubt that this particular trade-off (cleaner water for dirtier air) is worth it. The project protects over 8 million people who depend on this water supply from the risk of water-borne contaminants that could cause a significant public health crisis. I point it out not to criticize this project but rather to illustrate the kinds of trade-offs policy makers face all the time.

I’d love to hear your thoughts.

The CDP recently released the 2011 edition of the annual CDP Global 500 report which examines the carbon reduction activities at the world’s largest public corporations. It’s worth downloading and reviewing.

Given our recent work on corporate sustainability goals and benchmarking, I was interested to see this summary of the types of emissions goals CDP respondents have set.

Not surprisingly, energy companies have so far been less likely to set emissions goals than companies in any other industry. Consumer staples companies top the list, with 94 percent of the staples companies that responded to CDP having some emissions reduction goals. This strong showing in part speaks to the perception among corporate leaders that consumers want to see action on climate change.

If you’ve looked over the report, I’d be happy to hear what you think the key takeaways are. Feel free to leave a comment.

- Judging from the goals they have announced, the major pharmas are serious about sustainability. All but one have specific, quantified sustainability goals.

- The pharmas are facing a major opportunity. Ninety percent of the goals they’ve announced deal with their internal operations. Most of the pharmas are not yet willing or able to announce supply-chain goals of any specificity. Yet the supply chain may account for the bulk of potential environmental impacts in some cases. GlaxoSmithKline, for instance, found that in 2009, the greenhouse gas emissions from its supply chain were twice those from its internal operations.

This suggests an opportunity to seize sustainability leadership for whichever companies can bring some focus to improving the environmental performance of their supply chain. These are highly sophisticated companies. I’m sure they are up to the challenge.

You can find our goals benchmarking research here.

The company has had operated a successful carbon capture pilot at the site for the last two years. The full-scale carbon-capture plant would have been operational in 2015 and would have captured and stored approximately 1.5 million metric tons of CO2 per year. It was intended to remove up to 90 percent of the CO2 from a 235 MWe portion of the power plant’s flue gas, according to AEP.

The Times reported that company officials were dropping plans for the full-scale plant, which would have cost $668 million, because they thought state regulators would not let the company recover costs by charging customers.

The $668 million price tag may seem high, but the Department of Energy had pledged to cover half of it. The remaining $334 million is nearly equal to AEP’s first-quarter 2011 earnings. The company expects to earn about $1.1 billion this year.

The chairman of AEP said “We are placing the project on hold until economic and policy conditions create a viable path forward.” But it’s not immediately apparent why the investment in carbon capture wouldn’t be “viable,” unless it simply fails to meet the company’s standard investment criteria. It would modestly depress the company’s profitability over the life the the plant. In exchange, the company, a major operator of coal-fired power plants, would be able to stake out a leadership position in carbon capture and sequestration.

The Times said the new labels “for the first time include estimated annual fuel costs and the vehicle’s overall environmental impact.” (Italics mine.) But the labels only count emissions produced while driving, not during the entire vehicle life cycle. While it’s true that driving the vehicle accounts for the majority its CO2 emissions, other life cycle phases can account for well over 20 percent of them, as these results from a life cycle assessment published by automaker Nissan show.

I hope we can gradually raise public awareness of the concept of life cycle thinking by using more precise language when we talk about environmental impacts.

The E P&L calculates environmental aspects of the company’s operations, such as water use and greenhouse gas emissions, and ascribes a financial cost to them. An E P&L doesn’t have to show only costs; it would ascribe revenue to initiatives that produced a net improvement of environmental performance, such as planting trees. PUMA does not show any such “environmental revenue” lines.

The company calculated that the environmental cost of the greenhouse gas emissions and water consumption across its supply chain in 2010 was €94.4 million, with over 90% of the total attributable to its suppliers. Net earnings in 2010 were €202.2 million, meaning that including environmental costs in the company’s P&L for real would slash its earnings nearly in half.

This initiative, the splashy announcement of it, complete with a live online Q&A by PUMA CEO and chief sustainability officer Jochen Zeitz, and ensuing publicity around it, are likely to stir greater interest in the corporate mainstream in the financial costs of environmental degradation.This is a great thing because accounting for the full cost, including ecological costs, of doing business, would go along way toward creating the incentives needed for dramatic improvements in corporate environmental performance. So despite my grim take on PUMA’s numbers, this is a wholly positive step and should be applauded.

PUMA’s calculus draws on the concept of ”ecosystem services.” For readers wanting to get up to speed on the concept of ecosystem services and how they are valued financially, I’ve assembled this selective reading list to get you started. If you have other sources you find valuable, please leave a comment.

• Valuing Ecosystem Services (WRI)
• Mainstreaming Ecosystem Services (WRI)
• Guide to Corporate Ecosystem Valuation (WBCSD)
• Valuing Ecosystem Services: Toward Better Environmental Decision-Making (National Academies Press). You can download a prepublication copy (pdf) of the above here.
• Valuing Ecosystem Services ( USDA Forest Service) 
•  An Introductory Guide to Valuing Ecosystem Services (pdf, DEFRA, UK)
• Video: http://www.youtube.com/watch?v=OribQXOYPLs (Gund Institute for Ecological Economics at University of Vermont)

There are broad differences in how companies set sustainability goals and which goals they choose to communicate publicly. In my many conversations with sustainability executives it’s become clear to me that many of them are not sure they are going about this in the best possible way.

Which Goals to Set?

With global warming the most prominent public environmental policy issue, it’s increasingly common for companies to establish goals for reducing carbon emissions. The specifics vary—from a percentage absolute reduction versus a prior year benchmark, to a reduction in “carbon intensity”—but carbon emissions reductions goals are table stakes for companies seeking to establish sustainability credentials.

Beyond carbon, many companies sensibly identify goals related to their major environmental impacts, or ones thematically related to their business. Given the attention that e-waste has received, it makes sense that electronics manufacturers like HP and Dell have set electronics recycling goals. The Coca-Cola Company has set a goal of neutralizing its water footprint by 2020.

Some companies, especially service businesses but also products manufacturers, are in setting goals regarding the environmental impacts their customers have while using their products and services.  A common form of this is energy efficiency targets for products.

Where in the Organization Are Goals Set?

Where in a company do sustainability goals originate? Are they set from the top down? Are they derived from the bottom up? In our interviews, we’ve seen approaches that are all over the map.

We heard the story about the global packaged goods company whose CEO set a goal that the sustainability team thought was absurd, unrealistic and unachievable. The sustainability lead at a large retail and pharmacy chain tells the story of how his CEO went on television and publicly announced a carbon emissions reduction target that was 50 percent higher than what he had agreed to the day before–to keep the sustainability leader “on his toes.”

Some companies take more of what might be called a bottoms-up approach. Dell told me, for instance, that it sets its sustainability goals with reference to science, input from engineering teams, and the product roadmaps of key partners.

A major automaker tells me that they’ve seen success setting sustainability goals from “the middle,” meaning that mid-level managers are asked to study a problem and establish a goal. They get together with their peers across different functions and look at technology trends, projections for the future size of the vehicle fleet, consumer expectations, regulatory trends, competitor behavior and so on. Middle management then proposes goals and an executive committee reviews and ratifies them.

Which Goals to Communicate Publicly?

Some companies are very sparing in which sustainability goals they choose to communicate publicly, regardless of how many internal goals they may set. Alliance Boots, the British retailer, has dozens of business units operating in dozens of countries. Each unit has its own environmental goals. But the company overall has publicized just one quantitative target: to reduce the carbon footprint of “Boots legacy stores” by 30 percent by 2020 compared to 2005. Real estate management firm Jones Lang LaSalle  has communicated a handful of sustainability goals but only one specific, measurable one: to reduce its clients’ carbon emissions by an amount at least ten times greater than its own carbon footprint each year. By contrast, some of the electronics firms I’ve spoken with have literally dozens of specific, quantitative goals. And UK retailer Marks & Spencer has received much attention for the 100 commitments it made in 2007 and the additional 80 in 2010, many of which are quantitative and specific.

New Research on Sustainability Goal Setting

We are researching this topic further and intend to publish a study on best practices for sustainability goal setting. If you’d like to participate in our research, have any suggestions, or have your own best practices to share, please leave a comment or drop me a line.

This finding is consistent with what others have been suggesting for some time. A while back I blogged on the question of whether climate-savvy companies may better investments here.

Data from the referenced study

The study was interesting for what it revealed about the major sources of carbon emissions (the so called hot spots) in the life cycle of a loaf of bread . The study is also interesting because it compared the footprint as calculated using primary data from a specific U.K. bread supply chain against calculations using generic data from life cycle inventory databases. Using primary data tends to be costlier and more time consuming. So if generic data can suffice to acheive the goals of a life cycle assessment, it is a more economical choice.

According to the study, wheat cultivation contributes 35 percent of the carbon footprint, and consumption (including refrigerated storage and toasting) contributes another 25 percent. Assumptions about the amount of food consumers waste suggest that another 5-10 percent is contributed by waste bread being discarded by consumers. Packaging and transportation were relatively small contributors to the carbon footprint.

The hot spots were the same for primary-data analysis and the secondary-data analysis, supporting the idea that the goal of a study should determine its data-gathering strategy. Carbon-labeling–providing data to consumers supposedly to enable them to make purchase decisions based on product carbon footprints–requires data from specific product supply chains. But other uses, including identifying the hot spots so a manufacturer could focus on those for improvement, could well be supported by secondary data.

My favorite finding from the study is that whole wheat bread has a lower carbon footprint than white bread. Milling the flour for white bread uses about 23 more energy per loaf, because it uses the grain less efficiently. So eat healthier and reduce your carbon footprint.

Ports are a vital link in international trade. But they are dirty. Diesel ships, locomotives and trucks, many of them old, poorly maintained and inefficient, spew vast amounts of pollutants into the air. According to the Natural Resources Defense Council, large ports generate pollution emissions many times greater than average power plants.

A Focus on Cleaning up Ports

A key source of pollution in port operations is drayage–the transportation of containerized cargo by specialized trucking companies the ports shipping docks. Many drayage trucks in use are old, ill maintained and highly polluting. Upgrading the truck fleet to cleaner vehicles is complicated by the fact that some 85% of the drivers are small, independent operators who own their own trucks. These independent owner operators (IOOs) tend to earn very little money–just $12 per hour after all costs are figured, according to one analysis. So they generally struggle to maintain their vehicles or to finance cleaner replacements.

Ports on both coasts of the United States have devised plans to clean up their air by focusing on the polluting drayage trucks. The West Coast plan looks very different from the East Coast one.

An East Coast Plan Uses a Light Touch

On the East Coast, the Port Authority of New York and New Jersey has developed a plan that offers subsidies and low-interest loans to encourage the owners of older, dirty trucks to replace them with newer, cleaner models. Details of this plan will be were released by the Port Authority this week on March 10, 2010.

The plan is a textbook case of using economic incentives to bring about a desired outcome, in this case, a reduction of approximately 120 tons of NOx, 14 tons of fine particulate matter, and 1,700 tons of greenhouse gases per year, according to the Port Authority.

A West Coast Plan Seeks to Reshape the Industry

The Port of Los Angeles, by contrast, has launched a program that seeks fundamentally to reorganize the drayage industry. To help devise its plan to reduce drayage pollution, the port hired the Boston Consulting Group (BCG) to do an analysis and make recommendations. The BCG analysis found that a penalty/subsidy/financing plan would likely meet its pollution-reduction goals a few years’ time. BCG reasoned, however, that such a plan would not leave the industry on a sustainable footing and concluded that the very structure of the drayage industry should be changed.

The Port of Los Angeles Clean Truck Program follows the broad outlines recommended by BCG, including setting rules that would remake drayage into an asset-based and employee-based industry. By 2012, drayage trucking firms operating in the Port of Los Angeles need to own their own trucks and use drivers who are employees, not independent contractors. Such a structure, the BCG study concluded, would not only meet environmental goals but also broader industrial and social goals, including ensuring the stability of the drayage market and the availability of drayage capacity, while raising incomes for drivers.

Accounting for the Costs

The Port of Los Angeles/BCG plan is expected to raise drayage costs to shippers by more than 100% and cost some $500 million more annually than a non-asset and employee-based drayage model. The impact on total shipping costs should be modest, though. According to BCG, drayage costs generally account for only 10% of total shipping costs.

The Port of Los Angeles maintains that these costs are more than offset by avoiding externalized costs–borne by the public–of the current model, which include under-utilized trucks, traffic congestion, environmental damage and the degradation of public health. The Port puts these costs at $500 million to $1.7 billion annually.

Effectiveness of the Plans

In December 2009 the Port of Los Angeles announced that its program had already reduced truck emissions by 70% compared to 2007 levels and has eliminated some 30 tons of diesel particulate matter so far. Even tighter truck emissions restristrictions were phased in on January 1, 2010 and will be followed by ban in 2012 on any trucks with pre-2007 engines.

It’s too early to assess the effectiveness of the Port Authority of New York and New Jersey plan, which will be launched officially on March 10. But its clear that its scope is far more modest. It aims to reduce diesel particulate emissions by 14 tons per year, less than half the reduction that Los Angeles is already trumpeting.

Vibrant Political Dynamics

As the New York Times recently reported, the case of Los Angeles illustrates a vibrant political dynamic at work, with Teamsters joining forces with environmentalists against the trucking industry to support sweeping change. As the Times reported last year, though, unions’ use of environmental regulations and support of environmental causes can seem opportunistic.

Questions Raised

The sweep of the West Coast plan, which will completely restructure the drayage business in the region, assuming legal challenes to it by the trucking industry are unsuccessful, is impressive. The Port of Los Angeles was presented with a simple plan option that would have achieved environmental goals at modest cost in a few years’ time but opted instead to introduce a costlier and more ambitious program in pursuit of broader social goals as well (such as raising the standard of living of drivers.) This raises several questions:

1. Environmental goals are invariably interwined with economic and social ones. How can we make policy that weighs each strand appropriately?
2. How much prominence should be given to the analysis of long-term versus short-term consequences in the development of policy?
3. In light of the uncertainty inherent in long-term models, how ambititous should plans be? It’s worth noting that shipping is an industry of strategic importance. A glitch that impairs the functioning of the Port of Los Angeles can be felt across the United States.

If you have some thoughts on these questions, or other reactions to this piece, please consider leaving a comment  below.