There are few other forces that will transform manufacturing in the same way as sustainability and global warming.
We seem to have moved beyond the arguments about global warming. Whether man-made or whether it is naturally occurring, climate change seems to be having a noticeable impact on weather patterns around the world. This year alone, we have seen floods in Pakistan that have reached dangerous levels, monsoon rains in China and an intense heat wave in Russia. As a result, forest fires and deaths have transformed the Soviet summer. There has been devastation and disaster and wheat sales have been stopped. In Iberia, taking in the area of Spain and Portugal, millions of jelly fish have been washed up on the beaches stinging hundreds of holidaymakers. Forest fires inland have also hit the Algarve region in Portugal. In Australia, only 19 months after the Black Saturday fires, wild weather hit Victoria, creating the worst floods in decades.
According to the Australian Academy of Technological Sciences and Engineering, the number of days with record hot temperatures has increased each decade over the past 50 years, there have been fewer cold days each decade and 2000 to 2009 was Australia’s warmest decade on record. Over the past 50 years, rainfall has decreased in south-west and south-east Australia, including all the major population centres, sea levels have been rising 1.5 to 3mm per year in the south and east of Australia, and 7 to 10 mm per year in the north and west. It warns that Australian average temperatures by 0.6 to 1.5 degrees by 2030 and by up to 5 degrees by 2070. Decreases in rainfall are also likely.
Greg Ayers, the director of the Bureau of Meteorology told the ABC this year that climate records show that weather patterns are shifting. The planet, he says, is warming with more extremely hot days, and fewer cold and wet ones.
“When we look back over the last 50 years or so and look at the succeeding decade as we roll forward, what we see … is a trend of increasing temperatures from decade to decade,” Dr Ayers said. “We also see shifts in patterns of rainfall with the drying in the east and the south and the west of the continent. “There is an increase in temperature in the surface oceans around Australia as well that goes hand in hand with the … surface temperature increases over the continent, and there’s also … a rise in sea level.”
This will have an impact on manufacturing. It contributes domestic direct emissions, and it is indirectly responsible for emissions through electricity use. Furthermore, for powered manufactured goods such as appliances, electronics and autos, most emissions are created from product use, not their manufacture.
The result: manufacturing will be significantly impacted by any future climate change regulatory regime.
The sector needs to confront the risks and opportunities that climate change presents. This includes not only an awareness of and engagement in the national policy debate. Manufacturers also need to look at how climate can be factored into core business strategies and create new revenue streams.
Already climate change is creating opportunities for manufacturers. Australia has particular strengths in niche markets such as solar hot water, photovoltaics, biomass waste to energy conversion, small scale wind turbines and stand alone power systems. Austrade has identified opportunities in solar, wave and tidal, geothermal, bioenergy from agricultural wastes, energy crops, landfill gas, sewage gas, sugarcane, urban biomass, and wood and related wastes and biofuels such as ethanol. Being one of the world’s largest sugar exporters, Australia’s Sugar Research Council has flagged potential electricity production based on under-utilized bagasse and trash resources of sugar mills.
Other potential energy sources include geothermal, crop waste, municipal solid waste combustion, sewage gas, wave and ocean technologies and wood waste. Australian energy consultants, project managers and companies that install renewable energy systems are recognized worldwide.
Major Australian manufacturers of PC cells, modules and systems components include Silex Systems Limited, Dyesol, Origin Energy, M&H Power Systems, PV Solar Tiles, Selectronics, Power Solutions Australia, Mono Pumps, Latronics, Solco, Plasmatronics, Swiss-Electric Solar, Solar Energy Australia, Rainbow Power Company, Redflow Energy, Century Yuasa Batteries and Exide.
Sustainability also offers manufacturers potential for export. Many Australian companies have successfully designed and implemented programs throughout the Asia-Pacific region for wind, micro-hydro, hybrid and solar systems. Australia also has facilities for independent high quality testing services for the renewable energy industry.
Another advantage for Australia is that it has among the lowest electricity prices in the OECD, about half what businesses pay in North America and Europe, potentially creating more cost competitiveness.
In addition to that, the Australian Federal Government has established a Green Car Innovation Fund that encourages Australian car companies to build environmentally friendly vehicles on a dollar for three dollar basis.
This creates opportunities for auto parts makers.
This is why the Advanced Manufacturing Co-operative Research Centre has targeted renewable energy as one of its priorities in its portfolio of projects. It sees this as a manufacturing growth sector.
The critical issue here is the role of Governments. In a briefing paper, the OECD says governments will play a critical role in encouraging what it calls “eco-innovation in business. “Eco-innovation has the potential to lead to significant economic opportunities,’’ the OECD said. “But investors need a clear and credible price signal and long-term targets now to make the appropriate investment decisions for a greener future. Even with such a price, the costs of some innovations may be very high initially, and government will have to share the risk of new technologies with the private sector in some circumstances.”
This means manufacturers are more likely to work closely with government agencies as they move towards sustainable operations.
Those are the opportunities. Sustainability issues however presents challenges and will change the way many businesses will operate. Business will need to make adjustments.
Manufacturing operations most likely to be affected by climate change regulations are those that result in significant direct greenhouse gas emissions (GHG), such as cement, iron and steel production. Paper and chemicals operations that are highly energy intensive will also be affected. These are the industries that regulators are most likely to target.
Climate change is likely to result in higher general business costs including supplies, insurance premiums due to climate change issues, transportation, water and raw materials. There is also the risk of structural damage from storms and floods and the prospect of transportation delays due to storms or heat or even water damage.
We can add to that a string of regulatory and litigation risks. These can include non-compliance and non-disclosure fines, delays because of a lack of preparedness for regulations, liability for non-compliance with client sustainability requirements and the loss of tenders due to a lack of environmental and sustainability policies. Then there are the market and competitive risks. These include the loss of customers alienated by the lack of green products and operating procedures, and the loss of market share to competitors offering greener products and services.
Climate change rules are also likely to result in upward pressure on energy prices which are already under pressure because of demand from India and China. Many, like former Woolworths chief executive officer Roger Corbett, have predicted that energy costs could increase ten-fold over the next 10 years. If that is correct, it will profoundly change the way society and business operates because everyone’s life is now dependent on unit energy costs. Manufacturers who find ways to cut their energy consumption without reducing output will be in a stronger competitive position as will be the ones who produce highly efficient consumer products, compared with competitors producing similar, but more energy intensive goods and services.
Manufacturers that respond early with steps to mitigate and adapt to climate change will be better prepared for regulatory changes. They will also be able to save money through efficiency and will be ahead of competitors that are slow to react to the changes. Also, they will attract new customers and achieve more solid customer loyalty. On the other hand, climate change laggards face reduced revenue, and potential business failure because of higher costs and loss competitive advantage.
The first step that manufacturers need to take is to obtain senior management commitment. Having the change initiated by the chief executive officer or managing director is only the first step. It has to cascade down in order for it to be effective.
The business would need to do an audit analyzing energy and water usage, transportation as well as waste and garbage. It will also need to look at whether it uses recycling services. After doing that, the business needs to establish a baseline for the amount of water, energy and supplies the business uses, and how much waste it generates. The baseline then becomes the comparison rate for benchmarking against industry best practice and also for monitoring future progress.
It is important to remember too that you can only manage what you can measure. This means it is important to regularly monitor and measure progress against designated targets to help assess the effectiveness of sustainability programs and identify areas that need improvement. A regular audit will also identify discrepancies and unusual spikes that might require immediate attention.
Climate change needs to be considered in terms of business risk management. This is particularly important for manufacturers relying heavily on energy and water and where a lack of availability or a large increase in costs could have a significant impact on the bottom line.
`Consultants therefore advise manufacturers to identify areas of their business that are at risk. This will vary from business to business and every company will need to evaluate risks based on its specific individual operating requirements and procedures, and prioritized in terms of likelihood and impact. But in general terms, the key risks for all are raw material costs, energy costs, food costs, supply costs, transportation costs, water costs, water availability, interrupted supply flows, increased insurance premiums, structural damage from storms and floods, carbon emission liabilities, non-compliance fines, loss of tenders, liability for non-compliance with client sustainability requirements and loss of customers.
It is also important to have staff engagement. No sustainability program can get off the ground without co-operation and involvement of all staff members. Some companies have taken steps that include establishing forums to inform employees about energy, waste and water savings, creating “sustainability advocates” and “green teams” comprising people from each major department such as maintenance, marketing, finance and operations to help monitor and implement efficiency measures. Some also reward employees for energy saving ideas.
Certainly, sustainability has now emerged as one of the biggest challenges facing business today. The impact will be nothing less than revolutionary. The challenge for manufacturers will be to identify the risks and opportunities. This is the sector that will lead the charge to a post-carbon economy. Venture capitalists will see that energy is the mother of all markets and the manufacturing sector might be in the sweet spot for future funding. Green laggards will be left behind.
