|From Shop Floor to Top Floor: Best Business Practices in Energy Efficiency|
|Written by William R. Prindle|
|Wednesday, 30 June 2010 12:18|
(This is the Table of Contents, Executive Summary, and Introduction to From Shop Floor to Top Floor: Best Business Practices in Energy Efficiency, available from the PEW Center on Global Climate Change)
From Shop Floor to Top Floor: Best Business Practices in Energy Efficiency
Foreword Eileen Claussen, President, Pew Center on Global Climate Change
Driven by rising energy prices and growing concerns about greenhouse gas emissions, companies are implementing aggressive, corporate-wide energy efficiency strategies. Leading companies are not only setting ambitious energy savings targets, they are reaching out to suppliers and customers, and engaging employees at all levels of the organization to advance an ethic of energy efficiency.
The results are impressive. Some companies reported billions of dollars of cost savings and millions of tons of avoided greenhouse gas emissions from their efficiency efforts. These businesses are leading the way in demonstrating that the climate challenge can be met in a way that allows for continued, robust economic growth. The companies that have achieved these successes share several key attributes. In this Pew Center report, author William R. Prindle of ICF International, catalogues and describes these attributes, which include:
The Pew Center would like to thank Dr. Marilyn Brown, Matthew Cox, Adam Hinge, and Christopher Russell for their comments on an earlier draft of the report, and the many member companies of our Business Environmental Leadership Council that provided comments and guidance throughout the research process.
Executive Summary v
I. Introduction 1
A. Background 1
B. Purpose of the Report 2
C. Overview and Organization of the Report 3
II. Making the Case For Corporate Energy Efficiency 6
A. The Policy Environment 6
B. Shifting Out of the Boiler Room Paradigm 9
C. Forces Driving the Paradigm Shift 10
D. Boiling Down the Business Case 12
III. Pew Center Energy Efficiency Survey Findings 16
A. Efficiency Goals, Timelines, and Benchmarks 17
B. Leadership, Staffing, and Accountability 19
C. Financing and Risk Management 21
D. Challenges, Surprises, and Future Needs 22
IV. The Seven Habits of Highly Efficient Companies 25
1. Efficiency is a Core Strategy 25
2. Leadership and Organizational Support is Real and Sustained 25
3. The Company Has SMART Energy Efficiency Goals 28
4. The Strategy Relies on a Robust Tracking and Performance Measurement System 28
5. The Organization Puts Substantial and Sustained Resources Into Efficiency 31
6. The Energy Efficiency Strategy Shows Demonstrated Results 32
7. The Company Communicates Energy Efficiency Results as Part of the Core “Stories” It Tells 33
V. Best Practices: Internal Operations, Supply Chains, and Products and Services 34
A. Internal Operations 34
(i) Energy Team Organization and Relationships to Other Parts of the Company 34
(ii) Overcoming Organizational Barriers 35
(iii) Data Collection and Reporting 38
(iv) Financial and Risk Management Assessment of Efficiency Investments
(v) Leveraging Culture Change 45
B. Supply Chains 47
(i) Key Business Drivers for Supply Chain Efficiency Strategies 48
(ii) Mapping the Supply Chain Energy Footprint 50
(iii) Examples of Company Supply Chain Initiatives 51
(iv) Recommended Practices for Supply Chain Efficiency Strategies 53
C. Products and Services 56
(i) Business Opportunities in Energy Efficient Products and Services 57
(ii) Key Drivers Behind the Push to Develop and Sell More Efficient Products and Services 58
(iii) Residential Products and Services Issues 59
(iv) Energy Efficiency and the Smart Grid 60
(v) Commercial/Industrial Products and Services Issues 60
(vi) The Supply Chain Connection 61
(vii) Recommended Practices for Products and Services 62
VI. Getting Started: Creating a Corporate Energy Efficiency Strategy and Program 64
VII. Conclusions and Future Considerations 67
VII. Case Studies 71
Dow Chemical Company 72
United Technologies Corporation 85
Toyota Motor Engineering & Manufacturing North America, Inc. 117
Best Buy 144
IX. Endnotes 157
X. Appendices 160
Appendix A: Pew Center Survey Methodology 160
Appendix B: Energy Savings Goals—Averaging Methods and Caveats 162
This report stems from a historic shift in business leaders’ perceptions of energy and climate change issues. In the last decade, rising and volatile energy prices have converged with increasing concern about climate change and growing consumer support for action on energy and environmental issues to drive a surge of corporate environmental commitments. As companies have begun to act on these commitments, energy efficiency has emerged as a first-priority strategy. Accordingly, many companies have launched aggressive efficiency strategies, in many cases well beyond the scope and reach of earlier efforts.
This report documents these leading-edge energy efficiency strategies, distilling the best practices and providing guidance and resources for other businesses choosing this path. It was developed over nearly two years of effort from Pew Center on Global Climate Change staff, a project advisory committee, members of the Pew Center’s Business Environmental Leadership Council (BELC),1 project consultants, and report authors. The project encompassed a detailed survey of BELC members and other leading companies, in-depth case studies of six companies, a series of workshops on key energy efficiency topics, broader research in the corporate energy field, and development of a full-featured web portal to provide a platform for highlighting and updating key findings from the project as well as providing tools, resources, and other important information. The report covers efficiency strategies encompassing internal operations, supply chains, products and services, and cross-cutting issues.
A key finding from this report is that climate change has reframed corporate energy strategies. Companies that take on carbon footprinting and reduction strategies quickly come to see their energy use in a whole new light. On average, companies surveyed for this study reported spending less than five percent of total revenues on energy—even in today’s relatively high cost energy environment. But when these companies calculate their carbon footprint, they typically find that their energy consumption accounts for the great majority of their directly measurable emissions impact. Suddenly, energy shifts from a small cost item to the biggest piece of their carbon footprint. Viewed from this perspective, energy efficiency becomes a sustainability2 imperative.
This report summarizes the core elements of the best corporate energy efficiency strategies into “Seven Habits” of core practices and principles, cutting across internal operations, supply chains, and products and services. These habits are summarized in Table ES-1, and include: efficiency is a core strategy; leadership and organizational support are real and sustained; the company has SMART (specific, measurable, accountable, realistic, and time-bound) energy efficiency goals; the strategy relies on a robust tracking and measurement system; the organization puts substantial resources into efficiency; the energy efficiency strategy shows results; and the company effectively communicates efficiency results internally and externally.
Table ES-1, The Seven Habits of Highly Efficient Companies
The report also describes common barriers companies face in developing and implementing energy efficiency strategies, and provides examples of successful approaches to overcoming these barriers. The most common barriers identified by the companies studied in this report include: lack of project funding; lack of personnel with the appropriate skill sets; inadequate management tools; and insufficient technical information.
Augmenting the report are case studies of six unique and highly effective corporate energy efficiency programs. These case studies, built through a combination of site visits, phone interviews, and email data requests, add depth and detail to the major trends and conclusions identified in the body of the report. Three of the case studies examine integrated approaches to achieving superior corporation-wide energy performance and another three look at specific initiatives targeting products and services, the supply chain, and internal operations. The case study subjects are: The Dow Chemical Company, United Technologies Corporation (UTC), and IBM (integrated approaches); Toyota (internal operations); PepsiCo (supply chain); and Best Buy (products and services).
These and other leading companies are showing what organizations can do to reduce energy use and carbon emissions. Businesses have the power, through their people and their collective resources, to drive not only technology changes, but behavioral and cultural changes. And since businesses account for the majority of energy use, at least in the U.S. and other industrialized economies, this study suggests that they may possess some of the most powerful tools needed to meet today’s climate challenges. The Seven Habits principles and practices identified in this report could become the basis for new standards of practice that companies drive not just through their operations, but also across their value chains, creating a powerful force for meeting the climate challenge.
This report documents these leading-edge energy efficiency strategies, describing best practices and providing guidance and resources for other businesses seeking to reduce energy use in their internal operations, supply chains, and products and services. It was developed over almost two years of effort from Pew Center staff, the project advisory committee, BELC members, project consultants, and report authors. The project encompassed a detailed survey of BELC members and other leading companies, in-depth case studies of six companies, a series of workshops on key energy efficiency topics, broader research in the corporate energy field, and development of a full-featured web portal to provide a platform for highlighting and updating key findings from the project as well as providing tools, resources, and other important information.
B. Purpose of the Report
Companies have pursued efficiency successfully and have results to show for it. The energy crises of the 1970s jolted many companies into efficiency action, and while some of those actions were delayed or sidetracked during the intervening decades of inexpensive energy, the experience companies gained during this period has helped them respond to the latest set of energy shocks.
The report is designed to achieve two overarching purposes: 1) Articulate the business case for energy efficiency strategies. In many cases, companies’ climate change strategies help drive their energy efficiency efforts, but this study has shown that there is a robust business basis for more aggressive efficiency strategies; and 2) Educate corporations and other organizations on the most effective energy efficiency strategies and overall management approaches in their operations, supply chains, and products and services. These approaches include tactics for reducing the barriers to wider adoption of energy efficiency.
To bring focus to this complex topic, the report breaks efficiency strategies into four categories of best practices: organization-wide, internal operations, supply chains, and products and services. This categorization, while helpful for organizing the report, should not be used to fragment the overarching principles and success factors. Companies with successful energy efficiency strategies maintain company-wide programs engaging people at many levels and across many functions and operating units. Internal operations, supply chains, and company products are interwoven with the company’s customers and suppliers; for example, one company’s supply chain is another company’s products. Some companies use what they learn through internal operations to develop innovative products and services. Others have transferred knowledge gained from administering their own efficiency programs to their suppliers. The companies that fully “get” the scope of winning efficiency strategies drive them as far as they can, cutting across the report’s categories. One of the clearest hallmarks of success in today’s best energy efficiency strategies is that they break down walls between functional units, business units, and other organizational domains. This kind of strategy goes far beyond cost management, supporting productivity and innovation and creating new streams of customer and shareholder value.
C. Overview and Organization of the Report
1. The Pew Center’s BELC is the largest U.S.-based association of companies dedicated to business and policy solutions to climate change. The 46 companies in the BELC represent $2 trillion in revenues and nearly 4 million employees. For more information, see: http://www.pewclimate.org/companies_leading_the_way_belc.
2. The most commonly cited definition of sustainability comes from the 1987 Report of the World Commission on Environment and Development, which defined the term as “meeting the needs of the present generation without compromising the ability of future generations to meet their own needs.” (Brundtland, G. (1987). Report of the World Commission on Environment and Development: Our Common Future. Oxford, Oxford University Press. Available at: http:// www.un-documents.net/wced-ocf.htm, viewed Jan. 30, 2010). Within a business context, sustainability is often used as a blanket term covering a range of corporate efforts to reduce environmental impacts stemming from operations and activities.