20. Environmental Sustainability 2 - Triple Bottom Line

Sustainable practices cannot separate:

• Ethics
• Management
• Economic analysis
• Financial/management accounting

Hence, environmental sustainability is covered last in the course

Difficulties:

• Deeply values based: whose values?
• Sustainability cannot be measured in absolute terms
• How can environmental, social and economics impacts of two different proposals be compared?
• What are the minimum requirements? Rights, equity, greater good, etc.

Hence, we must ask: How can we evaluate conflicting economic, environmental and social interests?

Triple Bottom Line Analysis

A cost-benefit analysis that takes into account environmental and social interests.

International standards and transparency are essential to ensure comparisons are valid; many standards exist.

Probably should be the de facto standard: Global Reporting Initiative (GRI).

KPMG corporate responsibility reporting survey in 2017:

• CR reporting in NZ not great: only 69% of top-100 companies (by revenue)
• Only 35% of companies use the GRI or IR frameworks with the CR reports
  • Beware companies making up their own frameworks

Limitations:

• Difficult to evaluate cost and benefits of each of the criteria
  • Asymmetry in costs (few people, heavily affected) and benefits (many people, spread out)
• Deciding on criteria
  • e.g. is biodiversity more important than cheaper electricity?
  • Who was consulted? Who chooses their weightings?
• Who should be prioritized if there are competing cultural priorities?

Hence, TBL is not a robust decision-making tool, but it is a useful exercise to get conceptual model of the issues.

Environmental Impacts

Compliance-based sustainable engineering:

• Minimum acceptable behavior: is what you are doing legal?
• Legislation, regulation, policies, codes
• NZ: Resource Management Act (1991)
  • Avoid remedying/mitigating adverse impacts wherever possible
  • Currently being repealed, hopefully for the better

Environmental Impact Assessments (EIA)/Assessments of Environmental Effects (AEE)

May be required by regulatory bodies or done voluntarily.

EIAs reports on indicators of impacts:

• Biology e.g. some species can act as canaries
• Physical e.g. noise, water quality
• Chemical e.g. metal concentrations

Standard methodologies should be used in EIAs to ensure credibility:

• GRI
• IAIA: evaluation done prior to major decisions/commitments being made
• Ministry for the Environment

Life cycle analysis:

• Material extraction/processing, manufacturing, distribution, product use, end of life
• Multiple standards: ISO 14000, IEC 62430

Potential metrics for environmental impacts:

• Resource intensity: sum of all resources/energy need to create, use and dispose a product
• Ecological footprint: estimated total surface area of arable land required to provide enough renewable resources to maintain a certain standard of living
• Carbon footprint: amount of greenhouse gases produced to support human activities

Societal Sustainability

Once again, the baseline is legality. GRI has a few categories:

• Labour practices: health and safety, gender equality etc.
• Human rights: investments, child labor, forced labor, collective bargaining, etc.
• Society: supporting local communities, corruption, anti-competitive behavior, etc.
• Product responsibility: safe products, correct labelling, communications, privacy, etc.

This should extend to suppliers and partners as well as a company’s own practices.

ISO also has standards for social responsibility (ISO 26000), although they are more guidelines than prescriptive steps.

Social Impact Assessment

IANA definitions:

• Analyzing, monitoring, managing social consequences of development, both intended and unintended, positive and negative

Impacts on people’s:

• Way of life
• Culture
• Community
• Political systems
• Environment: air/water quality, food, noise, physical safety, access to/control over resources
• Health: physical, mental, social and spiritual well-being
• Personal and property rights
• Fears and aspirations
  • For their future, the future of the community and the future of their children

Trading off competing requirements and rights are extremely difficult, but this does not mean we should not try.

So how do we evaluate competing societal and stakeholder interests?

Evaluating Competing Societal/Stakeholder Interests

Step 1 - Identify stakeholders.

Step 2 - Consult with stakeholders:

• Do not presume you know the relative importance of various costs/benefits to the stakeholders
• Community consultation: community ranks different outcomes, generates alternative solutions
  • Multi-criteria decision analysis
    • Allow the stakeholders to rank perceived environmental, social and economic impacts
• Group decision making/consensus:
  • Don’t just ask what their issues are
  • The community will have some power over the project
  • Community acceptance is vital
  • This will take time
• Cultural Relativism
  • ‘Culturally competent’ POV
  • A way of finding a solution when a ‘different’ cultural group is a stakeholder
  • Cultures are not inferior/superior; just different
    • Ignore your system 1, knee-jerk reaction to their beliefs
  • Beliefs may be incongruent with a scientific rationalist position
    • Accept both perspectives as valid; do not pass judgement
• Consider:
  • Specific knowledge that the group has of an area - geographic, technological, philosophical, theological
  • The value constructs of the group
  • What things/processes are important to them?
    • e.g. access to the sea
  • What is their decision-making process and the power distribution?
    • Is it a group decision or is power concentrated in a leader?
  • Methods of problem solving: individualism-collectivism
  • Specific terms/words important to the group and their world view
    • Cultural practices e.g. greetings
• Social framework hierarchy
  • One option for evaluating competing interests
  • But who evaluates them and on what basis? Deontology? Teleology?
  • Hierarchy of values:
    • Priority one: human rights
    • Priority two: employee and stakeholder relationships
    • Priority three: diversification
• Asymmetry between bearing the costs and reaping the benefits
  • The people negatively affected (e.g. wind farms in their backyard) are usually not the people that benefit
    • And costs are concentrated but benefits dilute

Economic Sustainability

Much easier to evaluate than environmental (and much, much easier than) and societal impacts.

Step 1 - does the proposal make economic sense on its own? Discounted cash flow analysis, NPV, IRR etc.

Step 2 - assess economic sustainability:

• The whole life cycle
• Consider all economics of environmental and social impacts
• Alternatives should be normalized
  • Equivalent outputs (e.g. MW generated, tonnes of waste)
  • Equivalent lives (EAC)
  • Equivalent capital costs

Levelized Cost of Energy (LCOE):

• Unit cost (per kWh) of a payment stream that has the same present value as the total cost of building and operating a generating plant over its life
• Similar to equivalent annual cost analysis: allows different types of electricity generation/storage to be compared fairly
• Includes initial investment, annual revenue, operating expenses, end-of-life costs
• May include depreciation, debt services, taxes, government incentives
• Sensitive to discount rate
• Can be real or nominal
• Busbar cost - transmission costs not included
• IPCC, US Energy Information Administration and others make analyses

Energy Return on Investment (EROI):

• $\text{EROI = frac{\text{energy output}}{\text{energy input}}
• Amount of energy needed to produce a certain amount of energy
• Sources such as oil shales have a very low EROI of around 1 - very inefficient
• Coal has a relatively high EROI (25)

Cost of Emissions:

• Emissions per unit (usually CO_2 equivalents)
• Examples:
  • 2.45kg of CO_2 equivalents per litre of petrol
  • Direct emissions for electricity from NZ’s national power grid: 0.0977 kg CO_2 equivalents per kWh of electricity
  • NZ Emissisons Trading Scheme puts price on these emissions to encourage emissions reduction
    • Can emit up to a certain point for free; need to buy or earn credits above this point
    • Some industries (e.g. agriculture) have exemptions
    • Increases prices for consumers
    • ~35 dollars per unit (1 tonne of CO_2 equivalents)
    • Climate Change Commission report:
      • Need to increase to ~250 dollars by 2050 to reach zero net emissions

Social Cost of Carbon (SSC, SC-CO_2):

• Adds social correction number to the cost of carbon
• Estimated cost in dollars of long-term damage caused by each additional tonne of carbon
• Includes cost of decreasing agricultural productivity, human health/property damage etc.
• Results vary depending on who calculated it

Benefit Cost Analysis (BCA):

• Can be used with any of the above metrics
• Assigns values (present values) to all direct and indirect outcomes of an independent project
• If NPV > 0 (and assuming no capital rationing), project should proceed
• Three types of benefits:
  • Benefits with monetary values derived from the marketplace
    • e.g. vehicle operating costs
  • Benefits that are given a standard monetary value
    • Cost of carbon
    • Value of a Statistical Life
      • Consider society with $n$ individuals facing a baseline mortality rate of $p$
      • A project reduces the risk by $\Delta p$
      • Each individual has a willingness to pay for the project: $\text{WTP}$
        • Found through surveys
      • Hence, $\text{VLS} = \frac{\text{WTP}}{\Delta p}$
      • NZ’s Ministry of Transport, 2016: $4.18 million
  • Benefits without standard monetary values
    • e.g. cultural/visual/ecological impacts
• Drawbacks
  • Who determined what environmental indicators would be used?
  • Who determined the monetary values given?
  • Sensitive to discount rates