Cost Impacts of Environmentally Preferable Purchasing
(Includes: Direct Costs of Operations, Hidden & Indirect Costs, Contingent Costs, and Image and Relationship Costs and Benefits)
1. REDUCED OVERALL OPERATIONAL COSTS
Life-Cycle Cost Analysis Often Shows the “Green” Product to be the “Cheapest”
The process of life-cycle analysis (LCA), proposed in the draft Procurement Code, is ideal for government use as well as for successful businesses. It includes an examination of a product or service over its entire life, for which governments especially should be concerned as they have total responsibility of products including for final disposal. The LCA technique offers a methodology for identifying and quantifying the inputs, outputs, and potential environmental impacts of a product or service throughout its life. Compared to looking simply at the purchase price, implementing this type of analysis often reveals the “green” choice to be the cheapest. (Mastny 38-39) Adopting an environmental perspective allows organizations to discover and avoid previously hidden costs by looking beyond the initial cost and examining the savings resulting from reduced material handling, reporting requirements, pollution abatement, or disposal costs that could accumulate over the next 5, 10, or 20 years. (Private 12)
Incorporating EPP criteria into the procurement code and resulting contracts can often save money both directly and indirectly due to the inherent nature of EPP products and services, often viewed as “best value” purchases over their life cycle, while helping to leverage significant environmental benefits.
Examples:
o Trash Can Liners: A major specialty coffee provider is saving $500,000 annually by purchasing thinner trash liners. This simple shift has also reduced the company's annual use of plastic by 750,000 pounds, without impacting performance. (Goidel email)
o High Performance Buildings: See Below for several examples that cut across several sectors.
Many EPP purchases positively affect operational costs; however, they have been divided up to illustrate how they contribute to savings or value in multiple ways.
2. INCREASED ENERGY AND WATER EFFICIENCY
Energy & Water Efficient Products
Examples:
o L’Oreal: the world’s largest cosmetics manufacturer, cut its greenhouse gas emissions by 40% between 1990 and 2000 while increasing production 60%, largely by installing energy efficient lighting in its facilities and introducing a recycling program to cut back on waste incineration. (Mastny 20)
o Anheuser-Busch: is saving 500 million gallons of water, 2 trillion BTU’s of energy, and $60 million annually as a result of its emphasis to reduce utility usage and cost. At Sea World in Orlando, FL, they are saving more than 1.5 million kilowatt-hours and about $100,000 in energy costs annually and $40 million a year as a result of its purchase and installation of bio-energy recovery systems which also greatly reduces the amount of pollution being generated resulting from a reduction in electricity demand. (Private 22)
o Warner Brothers: Energy efficiency retrofits, including lighting, occupancy sensors, and solar electric systems, saved the company more than 4 million kilowatt hours of electricity in 2002. In addition to this, the company also buys recycled content building and construction materials, office paper and supplies, and parking bumpers and has adopted a green building standard for interior remodels. (Mastny 20)
o San Jose, CA, has had considerable success in reducing electricity costs in the past through an aggressive energy efficiency package of services managed by its incumbent investor-owned utility, Pacific Gas & Electric. Supported by $55,000 in rebates from PG&E, the City replaced lamps and ballasts with more energy-efficient equipment as part of the utility's "power savings partners" program. The City now saves $200,000 annually under this program. (Local)
o See more examples under Section #5, Performance Contracting
High Performance or “Green” Buildings and Interiors
Examples:
o The City of San Diego, CA, renovated a three-story, 73,000-sq ft office building for its Environmental Services Division using green building principles. Built at $37 per sq ft, which is only slightly more than the area’s typical renovation costs, the building saves the city more than $80,000 in annual energy expenses due to its advanced energy efficiency features which reduce the building’s energy consumption by 62%. (US EPA State 29)
o The San Diego Federal Building and Courthouse: a $1.3 million retrofit for energy and lighting efficiency improvements resulted in:
3% increase in productivity in office area and 15% in courthouse, prison, and post office spaces,
$230k in lighting energy savings in the first year,
$50k cooling energy savings in the first year,
Total savings = $1.6 million in the first year (High)
o Boeing Corporation: by using various efficiency measures, they have reduced lighting electricity use by up to 90% in some plants, and the company calculates its overall return on the investment to be 53%. Other benefits include greater employee control, improved interior appearance, reduced glare, and although difficult to calculate, senior managers estimate that the savings resulting from catching errors early on exceed the energy savings. These were the results from being a participant in the EPA’s voluntary “Green Lights” program to promote energy-efficient lighting. (Romm, case 2, p. 5)
3. IMPROVED WORKER PRODUCTIVITY AND MORALE
High Performance or “Green” Buildings and Interiors
The U.S. EPA and U.S. DOE estimate that indoor air quality (IAQ) problems account for anywhere between 3-20% losses in productivity equating to billions of dollars lost annually. The EPA estimates that “sick building syndrome” costs the nation nearly $60 billion in illnesses and lost productivity each year.
Productivity losses can result from absenteeism due to sickness, as well as degraded performance caused by allergies, headaches, fatigue, and odors. All such symptoms have been shown to be related to various indoor pollutants such as dust, volatile organic compounds (VOC’s), and biological pollutants such as mold. (Martin 8)
IAQ is affected by the off-gassing of chemicals found in common cleaning products, cleaning techniques, office furniture (particle board, textiles, plastics, and wood), carpeting, and building materials such as paint, adhesives, and drywall.
Also affecting employee productivity and morale is the quality of light in the workplace, including the amount of available daylight, and employee comfort related to ambient temperature.
Examples:
o Higher Occupant Productivity:
“Two recent studies found that day-lit buildings have more productive occupants than non day-lit buildings. Both studies used statistical techniques, controlling for other possible influences on occupant performance. In both cases, it was found there was 99% probability that the change in performance could indeed be attributed to the presence of daylight.”
“In the California school district study, where the researchers could control for the effect of teacher education and experience along with 50 other variables, they found that students in the most day-lit condition were learning up to 20% faster than those in classrooms with no daylight.”
“For the retail study, a chain retailer provided sales data on 108 nearly identical stores, some with and some without skylights. The researchers controlled for size of store, age, hours of operation, neighborhood population density and average income - a total of 12 variables – and found that, all other things being equal, the sky-lit stores were selling 40% more than their non sky-lit mates.” (Skylighting 2)
o West Bend Mutual Insurance Company: 500 employees in the 150,000 square-foot building were provided with Johnson Controls Personal Environments Systems (PEM), allowing them to control their individual workstation environments, including temperature, air flow, lighting and background noise masking. Results include:
16% increase in employee productivity, with 2.8 % directly attributed to PEM;
Thermal-condition complaint calls plummeted from more than 40/day to only 2/week (at a conservatively estimated cost of $25/call plus $300 in maintenance);
Reduced building construction costs: $125 (the market average) to $90/sq ft, plus utility costs.
Gains in productivity helped pay for the cost of PEM’s in about 18 months. (Kroner)
o Pennsylvania Power & Light: “Low-quality seeing conditions were causing morale problems among employees. In addition to the veiling reflections, workers were experiencing eye strain and headaches that resulted in sick leave.” Overall, general lighting was converted to task lighting, resulting in a drop in lighting energy use of 69%, while total operating costs fell 73%. After the upgrade, worker productivity also jumped by 13.2%, the absenteeism rate dropped 25% to 54 hours/year. The better appearance of the space reduced eye fatigue and headaches and the overall improvement in working conditions helped boost morale. (Skylighting, case 4, p. 6)
o Lockheed Building 157 (new building): The manager of Facility Interior Development reported that productivity is up because absenteeism has declined. A known population of workers moved into the new building and absenteeism dropped by 15%, which paid 100% of the extra cost of the building in the first year. (Skylighting, case 5, p. 8)
Least-Toxic Products
Least-toxic products reduce exposure of County employees and contract employees to harmful substances, thus reducing health and productivity impacts related to poison exposure as well as reducing County liability and insurance claims and reducing hazardous wastes the County must dispose of safely.
For example, many traditional cleaning products are known to contain carcinogens, asthmagens, mutagens, skin and eye irritants, toxic chemicals, endocrine disrupters, high VOC content, and other hazardous materials. County employees and contracted employees are exposed to these chemicals due to product residuals in facilities or through inherent exposure during use of the products. (Case 39; Culver 4-6; Green 1-2)
Pesticides, on the other hand are designed to kill living organisms, and although not strong enough to kill humans on contact, many pesticides bio-accumulate in human tissues negatively impacting the person over time. For many reasons, it is in the best interest of the county to limit exposure of its employees to toxic substances. This thinking is evidenced in the Integrated Pest Management (IPM) Administrative Directive and the IPM Resolution, as well as the County’s current testing of least-toxic cleaning products.
4. REDUCTION IN WASTE & DISPOSAL COSTS
Many EPP products produce less waste because they are durable, recyclable, have less packaging, or are reusable, thus saving the county money in disposal costs, replacement costs, and/or by prolonging the life of the county landfill.
Examples:
o Anheuser-Busch: To increase its recycling rate and decrease its waste volume, they worked closely with suppliers to establish a standard for the plastic strapping used to bind shipments of incoming materials. Recognizing that they were buying not only the product but also the strapping, two, color-coded, single-resin plastics were established for use in strapping materials, rather than the various colors and plastic resin types used previously. As a result of this effort, they are currently recycling more than 700 tons of plastic strapping a year due to the ease of separation. (US EPA Private 32)
Durable products produce less waste
Not only can some products be designed to be more durable, companies who design products for lease arrangements, design them to be durable, rather than the more common, design for obsolescence of products to be sold.
Examples:
o Compact Fluorescent Light Bulbs (CFL’s) can cost up to 20 more initially, but last up to 10 times longer than incandescent light bulbs, use about a quarter of the electricity to produce the same light or foot candles, and produce considerably less heat during operation which reduces air conditioning load demand. Thus, CFL’s save money on electricity costs in two ways, reduce costs related to product maintenance, replacement and disposal, and are energy efficient, durable, and often recyclable. (Mastny 18)
o See examples of durable products and lease arrangements under Section #5 “Leasing and Service-Based Contracts” below
Recycled Products
Recycled products support local recycling programs and effectively “close the loop”. Recycled products use significantly less energy, water, and materials to produce, from not extracting raw materials, not transporting the raw materials, and in the production of the new product.
Examples:
o Remanufactured Toner Cartridges: cost about 1/3 the price of new cartridges for both printers and copiers. The SCG office supply vendor can arrange a pick-up system in county buildings. (Mastny 18)
o Santa Monica, CA, its Fleet Maintenance Division uses re-refined motor oil which costs the city up to 25% less than virgin motor oil.
Over 50% of the fleet currently has retread tires. The city has used retread tires on its vehicles for more than 20 years.
o Swedish Medical Center, Seattle, WA, has worked to reduce its waste disposal costs by examining its purchasing and implementing a supply chain management program. Working directly with its largest suppliers, focusing on buying recyclable and reusable products, and involving staff to review products, Swedish has seen significant savings. Supply expenses used to account for 23% of the Center's annual net revenue. Today, these costs account for only 17.2% -- a difference of $16 million! (Goidel email)
5. REDUCED REPAIR AND REPLACEMENT COSTS
Leasing and Service-Based Contracts
By switching from a product-based to a service-based focus, companies can provide the desired service in the most efficient way possible, share as much of the resultant savings as necessary to compete, and still reap enormous financial benefits. Through operating leases, environmental benefits are also significant, as manufacturers keep life-cycle responsibility for the product, and are therefore motivated to reduce life-cycle impacts. This transition is much broader than a service add-on. A service focus can be better for the environment because it sells satisfaction, not a product. It can be better for business because it encourages innovative thinking about how to meet customer needs” (Arnold; Hawken)
Examples:
o Xerox Corporation: Offers three major types of leases for equipment as well as a variety of document-management services. All product leases include full-service maintenance with lease commitments ranging from 36 to 60 months. The company takes back any of its own products either at the end of outsourcing contracts or leases or from equipment owners returning or trading-in equipment. For the customer, this arrangement makes in-house maintenance a thing of the past and reduces solid waste disposal costs. Through the “Asset Recycle Management” (ARM) program, the company manages a wide range of returned products in its recycling and remanufacturing operations; thus, “closing the loop”. In exchange for these benefits to the customer, Xerox saved approximately $200 million in 1999 through product remanufacturing and diverted about 60 million lbs of waste from landfills. (Dillon 24-29)
o Interface, Inc. Service Agreement: Gives customers the opportunity to lease the flooring rather than buying it. In effect, the company is not selling a product (floor carpets), but providing a service (the use of attractive floor covering for specific periods of time). This means that Interface retains ownership and responsibility for the disposal of floor covering.
Advantages to carpet-user: Covering will always be to specification. User does not have to worry about replacement as Interface is responsible for upgrade. No drain on capital & no down-payment needed. Leasing has no impact on credit-lines. Simplified accounting. No vulnerability to interest rates fluctuation. ROI and ROA are improved as lease is not a balance-sheet item.
Advantages to Interface: Attract new customers due to a new and innovative service. Ability to reduce costs as used material is either recycled or remanufactured. (Hawken)
o Heating firms in France now sell “warmth” rather than raw energy. They promise to keep a client’s floor-space within a certain temperature range during certain hours at a certain cost. Because the companies decide how to achieve this contracted level of warmth they are free to pursue the least costly and environmentally harmful method. Some of the options used include converting to gas, increasing heating efficiency, or insulating the building. This structure provides a unique opportunity for both business and environmental benefits. (Hawken)
Performance Contracting
This deals with the installation of energy efficient retrofits by contractors through a lease-purchase arrangement. Energy savings are usually guaranteed to meet or exceed the repayment schedule. Thus, they must "perform" as proposed by the "contractor." Terms of repayment are normally approved up to ten years.
Performance contracting encourages competition between the contractors and provides the client "one-stop shopping". The contractor is responsible for the entire process from audit through construction and maintenance, thereby minimizing the time, effort, expertise, and labor needed by the client. (Energy)
Examples:
o Kansas City Convention Center, MO: The City Council voted to sign a performance contract with Johnson Controls to improve the complex’s HVAC system, plumbing and lighting, in response to a threat by a major corporation to back out of a commitment to hold its annual convention there due to its advanced state of disrepair. The contract included a 10-year service agreement.
The improvements required no up-front capital investment by the city, and Johnson Controls outlined a renovation plan that would pay for itself in 10 years using the money saved by increased efficiency and lower operating costs. The company even guaranteed a $1.1 million savings/year for the first 10 years, or it would pay the difference. This no-risk deal provided over $8 million in upgrades that otherwise could not be afforded. (Johnson Controls: Kansas)
o KeyCorp, Cleveland, Ohio: Until 1998, energy costs for the company’s 13 million sq feet of facilities were nearly 10% of corporate real estate costs, an amount management wanted to significantly reduce. An energy alliance between KeyCorp and Johnson Controls lowered KeyCorp’s energy bill by $3 million between 1998 and 2000. Further implementation of the Johnson Controls’ plan resulted in an additional $1.6 million in energy savings in 2000 alone. A plan was created for continued savings through increased awareness by building occupants, the negotiation of more long-term contracts, and better management of utility bill payments. In addition to monetary savings, KeyCorp reduced total energy consumption by 10% and created a better work environment for its employees and customers. (Johnson Controls: Key)
High Performance or “Green” Buildings and Interiors
Green buildings normally include durable products which decrease repair and replacement costs, and often are part of a performance contract which also has been shown to greatly reduce repair and maintenance costs while saving money.
6. REDUCED COSTS OF MANAGING HAZARDOUS WASTES
Low VOC’s Paint
Examples:
o Painting at Aberdeen Proving Ground, MD: Painting activities covered under Clean Air Act, Resource Conservation & Recovery Act, and CERCLA. Paint represented about 5% of their 50,000 reportable hazardous materials under EPCRA and they were located in an ozone non-attainment zone. The base used to use or store 2,200 different paints and coatings (excluding color differences), 565 were architectural or anti-corrosive. The tested their current paints against Green Seal’s standards. They began limiting their purchases to only the EPP paints they were already buying. Paints meeting the Green Seal standards are on average $1.76 cheaper per gallon. This resulted in savings of $25,000 annually in avoided disposal costs and Re-Nu-It facility paint purchases by $10,000 annually. This equaled savings of $60,000 a year. (Case 34-35)
o U.S. Air Force: 75% of hazardous waste is related to aircraft painting, stripping, and repainting operations. Reformulated paint for C-17 saves $1.6 million annually per aircraft, because it no longer has to be treated as hazardous material. (Case 36)
Fleet Maintenance
Example:
o Lee County, FL, incorporated EPP in an effort to eliminate the generation of hazardous waste from its vehicle fleet maintenance operations.
With this goal in mind, the county avoids buying products containing high VOC levels or those that result in the generation of regulated wastes; replaced chlorinated-solvent brake cleaner with a non-chlorinated solvent; replaced aerosol spray cans with refillable, air-pressurized dispensers; lauders and re-uses shop rags; recycles antifreeze in-house; uses an aqueous parts cleaner; and separates waste streams for recycling.
These EPP efforts reduced Fleet’s hazardous waste generation to zero, equaling 2,150 pounds of hazardous waste and saving the county approximately $17,000 annually in avoided waste disposal costs, all while creating a healthier work place by reducing the number of skin rashes and respiratory complaints. An additional benefit is a reduction in the amount of staff time devoted to regulatory paperwork. (US EPA State 9, 18)
7. REDUCED INSURANCE CLAIMS OR PREMIUMS
Least-Toxic Products
Examples:
o The Janitorial Products Pollution Prevention Project reports that 6 out of every 100 janitors in the State of Washington have lost time from their jobs as a result of injuries related to the use of toxic cleaning products, particularly glass and toilet cleaners and degreasers. (Mastny 18)
o The Washington State Department of Labor and Industry reports that the average cost per claimed injury for janitorial workers is $725. (Case 39)
o Richmond, CA, estimates that its switch to least-toxic cleaning products will eliminate 3,000 lbs of hazardous materials a year. Janitorial contractors expect the switch to reduce janitorial worker compensation claims by reducing the number, severity, and cost of accidents, to reduce hazardous materials needing to be disposed of, and to improve city employee productivity. They also anticipate worker compensation insurance costs to decrease as insurance premiums are based on the number and severity of claims. (US EPA State 24-25)
10. IMPROVED IMAGE AS TOURISM DESTINATION
Least-Toxic Products Will Not Pollute Sarasota Bay
Examples:
o Santa Monica, CA, established a “Sustainable City Program” and the “Toxics Use Reduction Program”, which governs the purchasing of all products that contain chemicals. Their proximity to the Pacific Ocean, their location in Southern California, and their image as a tourist destination made them very aware of both aquatic toxicity and air quality concerns due to storm water run-off and normal product uses.
Toxic cleaning products were replaced with least-toxic alternatives in 15 of 17 categories which eliminated approximately 3,200 lbs annually of hazardous materials in products purchased, reduced spending on janitorial products by 5%, and increased custodians morale because they appreciated the city’s concern for their health and working conditions and the opportunity to participate in making decisions about their work. (US EPA City 14)
An Integrated Pest Management (IPM) system was implemented which reduced the cost of pest control services by 30%. This drastically reduced pesticide use while continually eliminating pests, in fact, pest complaints have decreased. (US EPA State 34-35)
11. REDUCED LIABILITY
Least-Toxic Products
Examples:
o Nike has boosted the organic cotton content of its clothing because it worries about the potential health liabilities associated with conventional cotton production which requires high inputs of chemical pesticides and fertilizers. “By managing and designing out every harmful product, Nike won’t be at risk of paying higher costs in the future”, said Heidi McCloskey, global sustainability director at Nike Apparel. (Mastny 21)
o See Janitorial Products Pollution Prevention Project example above.
12. CONSISTENCY
EPP is consistent with the history, activities, and ethics of Sarasota County
Sarasota County has long been concerned with environmental stewardship, instituting various policies and initiatives to ensure the health, safety, and sustainability of county citizens, employees, land, and animals.
Among these environmentally-inclined laws and activities several support the purchasing of EPP products and services including:
o The Ordinance provisions supporting “Buy Recycled”, passed in 1991, updated in 2003
o The “Sustainability Resolution”, Resolution NO. 02-119, 2002
o The Water Efficient Landscaping Ordinance, 1996
o The Integrated Pest Management (IPM) Administrative Directive, 1996
o The IPM Resolution, 2000
o The Florida House Learning Center, 1994
o Twin Lakes Park “Green” Office Complex, 2003
o North County Library, 2003
Internal county purchasing has followed this path in the past, most notably with the purchases of the now defunct “Central Stores”, which stocked a variety of EPP products.
Incorporating EPP language into the County Procurement Code would just be making a formal commitment to something the county has really been doing for a long time.
13. GOVERNMENT ACTING AS A GOOD EXAMPLE
EPP should be promoted by governments to their citizens and businesses.
Good governments are meant to serve as models for their citizens, standing upright and guiding them in sound progressive directions. Why wait until customers or constituents lobby for change such as this? Create this change and serve as a model for your constituents. EPP is going “beyond recycled”, as it considers multiple environmental attributes.
EPP is practicing what we preach
Through the various activities and policies previously listed, SCG has long promoted EPP to its citizens and employees. It is a smart business decision to officially support green purchasing because as more of the market share shifts to greener products, the prices will be reduced. Already, the average cost of the most frequently purchased EPP products has dropped dramatically over the past decade. This is in part due to the vast numbers of governments and other institutions, including the Federal Government, who have put their dollars where their mouths are and switched their purchases to products and services with less environmental and social impacts. |