Taking it All into Account
Life-cycle assessment helps you see the true long-term costs of an investment
By Nina Winham
You’re helping your CEO with a decision about a new piece of equipment. Do you purchase the cheapest option or the most energy efficient? Is there a “best practice” way to decide?
Corey Sue is a CGA with a 20-year career spanning a variety of sectors – from hospitality to higher education to high tech. He says it’s true that operating costs such as electricity consumption were traditionally overlooked when making new investment decisions, but this is changing.
“It’s not always consistent, but it’s increasingly important to really see what the dependencies on a decision are, and include as many bases as possible in the decision-making process,” he says. “Life-cycle costing is an example of that, where you look at all the costs and all the benefits too. It’s a matter of looking at a complete picture.”
Life-cycle assessment (LCA) is increasingly being used when organizations want to understand and track their environmental impacts, such as carbon emissions. But it goes beyond just operating inputs (such as energy) and outputs (emissions). A full LCA considers social impacts (such as human toxicity, working time, accidents) and also the costs and impacts incurred both during the production of a product and its eventual demise (including recycling costs). It’s a full-picture analysis of how a product or service will impact what is around it.
LCA is a process for making decisions based on the full costs that will be incurred. In our simple example above, the cost of energy use over the lifetime of a less-efficient machine may be so high as to eliminate any upfront purchase cost advantage. (For example, BC Hydro estimates that the purchase and installation costs of a compressed air system represent just 12 per cent of life-cycle costs, while electricity consumed accounts for 76 per cent. Efficiency pays.)
Rick Truong, a Key Account Manager for BC Hydro who specializes in supporting municipalities, says his clients are increasingly interested in understanding all costs – including the social and environmental – of new decisions. “There’s always some pressure to gravitate towards projects that are going to be lowest in [upfront] cost,” he says. “But municipalities are becoming more sophisticated when they’re assessing projects. Projects are assessed based upon various viabilities, from maintenance costs through to social benefits and political goodwill. Simple payback is one quick way to make a decision, but if it is the only tool used then it could cost the company in the long run.”
Truong says a “perfect storm” of factors over the past few years has nudged LCA increasingly to the forefront. Electricity rate increases, the economic downturn, increasing demand for good environmental practices and the requirement for municipalities to reduce their carbon footprints have created a climate where understanding the true, holistic costs of decisions is a must. At the same time, the practices and tools available to make such assessments have become more robust and accessible.
Often, however, a full picture is not available unless it is one person’s job to bring the pieces together. Truong points to BC Hydro’s successful Commercial Energy Manager program, which supports the creation of these new roles in business and municipal offices as a factor in driving the adoption of LCA. “Energy Managers have been trained and encouraged to assess projects on a life-cycle cost perspective,” he says. “The financial folks may understand the concept [of LCA], but they may not fully understand the scope of benefits and costs that need to be looked at. Energy Managers are able to collect that information and feed it into the management team.”
Truong says such assessments are important not only for general decisions, but also to assess the value of investing in energy-efficiency projects, where reducing costs over time may be the main benefit.
As LCA is increasingly put to use, there are growing opportunities for training, support and learning from others. A UBC Continuing Studies course on LCA bills itself as “a practical introduction to the science of sustainability.” The Green Design Institute at Carnegie Mellon University offers free online software for LCA. An interdisciplinary “Life Cycle Assessment Alliance” at UBC is working to understand and improve life-cycle analysis, and interested parties can ask to be part of their email discussion group. Even the UBC Thunderbirds have used LCA to assess the impact of sporting events.
Business decisions have become more complex as people start taking into account environmental and social impacts. Understanding the tool of life-cycle assessment, so that all costs are accounted for, is one way to make sure today’s decisions still look good when viewed 10 or 50 years down the road.