‘Footprint’ calculations ignore capital activities, which could lead to bad investment decisions

We tend to focus on emissions associated with running machines and ignore those associated with building them. The EU energy label for white goods, for example, tells you how much electricity the product consumes but nothing about its manufacture.

Emerging methodologies for calculating ‘footprints’ have similar problems. Defra’s calculator for personal emissions – which was designed to set a standard for such calculators – only considers the fuel used during your journeys by aeroplane, car or public transport (not the emissions generating during manufacture and disposal of the vehicles) and the electricity and gas used by your home appliances (not the energy involved in making them). The WRI’s GHG Protocol, a de facto international standard for reporting corporate emissions, follows similar principles in only recommending that companies consider the greenhouse gases generated by their operating activities.

The significance of this is greater than getting the size of footprints right. It could also mean that we accidentally invest in ‘green’ projects that actually cause a net increase in emissions.

payback-graph.jpg

As everyone knows, investments take time to pay back. You put in capital and hope for a good return. The diagram on the right shows the cumulative cashflow for a lender who has offered capital (the loan) in return for regular revenue (the repayments), and breaks even in year six. Green investments should be viewed similarly: some emissions are accepted upfront, during the process of change, in the hope that they will be outweighed by reductions in ‘ongoing’ emissions.

If you install a solar panel, how much energy do you have to generate before you cover the emissions associated with manufacturing and installing it? When you buy a hybrid car (assuming that the car you have has not reached the end of its useful life), how far do you have to drive it before you break-even and the emissions you have saved equal those of building it? Do these products actually pay back? As consumers, we just don’t know – all we know is that they are energy efficient to run.

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4 Responses to “‘Footprint’ calculations ignore capital activities, which could lead to bad investment decisions”

  1. Great post!

    If the economics don’t work, recycling efforts won’t either.
    As our little contribution to make this economics of recycling more appealing, http://LivePaths.com blogs about people and companies that make money selling recycled or reused items, provide green services or help us reduce our dependency on non renewable resources.

  2. […] A sensible solution might be to use the atmospheric life of each gas as the time horizon, and discount the warming to reflect our preference for reducing warming closer to the present. This discount rate would also be used in the carbon capital calculations recommended in an earlier post. […]

  3. […] press recently. The report interested me, because product lifecycle analyses are quite rare (in an earlier post, In Balance noted that carbon footprint analyses almost always exclude capital […]

  4. […] need answering include: how will the new capacity work with core electricity supply? What are the capital emissions associated with manufacture and installation? What is the likely cost to energy consumers per tonne […]

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