All businesses incur costs as a result of environmental management requirements. Some of the costs are the result of economic instruments such as the landfill tax while many more of the costs result from legal requirements, such as upgrades to wood combustion plant in accordance with the relevant process guidance note.
A significant cost burden can build up for companies that, not surprisingly, grudgingly undertake to fulfil the minimum obligations as cheaply as possible. However, some companies adopt a more proactive stance and respond to the reason for the control regimes. These organisations still incur the unavoidable costs, but they seek at least to cover these through process changes.
For example, the landfill tax imposes a levy of £13 per tonne. A company could pay this fee and continue with business as normal. Alternatively, it could take action to avoid such costs. Waste minimisation saves costs through reducing the volume of raw material required to generate a product, decreasing processing time and labour as well as reducing the amount of waste sent to landfill.
Environmental management costs are only going to increase as the volume of European Directives shows no sign of abating. Of particular concern in the longer term will be the costs associated with the spread of “producer responsibility”.
Thus far, this concept only applies to packaging waste where it makes producers responsible for recovering and recycling a certain percentage of the packaging that they handle. Similar regimes are spreading to priority waste streams such as end-of-life vehicles, tyres, batteries and waste electrical equipment. Thereafter, there are likely to be generic requirements affecting all producers.
Wood combustion
In the shorter term, manufacturers should be aware of the proposed costs associated with wood combustion. Process guidance note 1/12 applies to wood burning plant rated at more than 0.4MW – c75kg per hour feed rate. The note is being revised and the current draft proposes retrospective limits for carbon monoxide of 150mg/m3, a figure which around 70% of existing plant will struggle to reach. Upgrading to reduce carbon monoxide levels is usually impractical, leaving companies with a choice of boiler replacement or sending waste for off-site use/disposal.
The replacement of boiler plants is generally not attractive in the short term as the expenditure of £100,000-500,000 will not lead to production improvements. In fact the only improvement will be a reduction in carbon monoxide emissions and the Department for Environment, Food and Rural Affairs (DEFRA) appears to be the only body that feels the benefits outweigh the costs.
Replacement of conventional space heating systems with a combined heat and electricity generation unit will provide much more benefit – but with twice the capital cost. In reality, if the revised guidance note is adopted, it is likely that many manufacturers will simply close their boiler plant, send their waste to landfill and use fossil fuels for space heating – leading to significantly greater environmental impacts than the former combustion plant.
All of these costs are justified by policy makers on the basis of the ‘polluter pays principle’. The theory is that a company makes profit while releasing pollution therefore it should provide financial compensation for the resulting environmental damage.
This theory would be fairly sound if harmonious controls existed around the globe. In reality, certain nations tend to not bother with such constraints. Therefore, European environmental controls designed to improve global sustainability have been a major factor in shifting production to unregulated areas which emit significantly more pollution. Some feel that such issues have escaped DEFRA which seems more interested in ensuring that the UK meets European emission limits – whatever the cost in terms of employment.
Positive aspects
However, before all manufacturers sell up and move somewhere with a decent climate, it is worth remembering that there are positive aspects associated with environmental management. For example, work by BFM Ltd has shown that the controls in PG6/33 have led to an average annual saving of £73,000 for each authorised coater of board materials – equivalent to 0.4% of company turnover. Newly published work by Envirowise demonstrates how five companies now save £344,000 and 200 tonnes of solvent between them as a result of changes.
A significant amount of work has shown the scope for cost savings in the field of solid waste management. Industry has traditionally focused on what to do with waste once produced. This involves buying raw materials, paying employees to process them, placing a large percentage in a skip and being grateful if the material can be removed for a reasonable fee. Minimisation at source provides a much better solution.
A significant proportion of manufacturing industry also has the potential to save money through energy reduction. A good starting point is compressed air which costs 10 times the price of electricity per kWh and typically accounts for around 20% of energy expenditure. Simple measures can lead to large savings, eg regular repair of air leaks and removal of air hoses for blowing down.
One of the benefits of such process changes is that the savings accrue year on year – unlike the expenditure which tends to be a one-off investment. The average savings outlined above from solvent, waste and energy reduction total 1.7% of turnover. These would go straight to the bottom line, having a significant impact upon the finances of manufacturing companies achieving profit margins of 0-10%.
