Macsweens Environmental Accounting Experience - Essay Example

Introduction Business processes are only viable so as long as they are able to fulfil the basic contention behind business activity – making profit. One of the chief reasons why organisations and businesses have been slow to adopt environmental practices is because the means are often not justified by the ends. In order for a business to take onto cleaner production, packaging, distribution and retailing practices it is necessary that the cost of cleaner processes be fully justified. Within this line of argument one of the chief issues to look into is the costing for cleaner business practices. Often it is not possible to tabulate costs for the introduction of cleaner business practices because of opportunity costs and due to liquid costing areas. However, the renewed emphasis on cleaner business practices is leading a number of businesses to adopt multiple approaches to deal with the issue of costs. Macsween is a traditional haggis manufacturer with a family owned structure operating the business for over three generations. James Macween the owning director of the company has come up with a new method to introduce cleaner business practices in recent years. James believes that environmental accounting is essential to discovering areas where the company can save money by implementing environmentally friendly business practices. The company has embarked on a journey to make business processes and finances more transparent so that other businesses can take cue and improve their environmental practices. However, the approach taken by Macsween has yet to prove that it is actually financially viable to adopt such practices. The larger roadblocks that prevent the viability of such practices is the lack of information that is required to determine the fiscal validity of such practices. This text will focus on using methods to elucidate if Macsween’s processes are viably tuned for environmental savings. This paper will rely on Life Cycle Assessment (LCA) carried out using ISO standards 14040 – 41 (ISO, 2006a) (ISO, 2006b). A general mapping of a typical LCA process is shown below for reference. 2. Goal Definition and Scope (ISO 14040) 2.1. System Boundaries The life cycle activities concerned with Haggis manicuring at the Macsween manufacturing facility will only be considered. Life Cycle Assessment (LCA) of business activities carried out at Macsween’s manufacturing site will be based on the following assumptions: the Macsween product lineage will be considered to be composed of a single haggis product (no flavour variation or vegetative variations will be accounted for); LCA for product will be confined to the processes carried out at Macsween only and neither at the raw material supply end nor the distribution end. In order to compare energy usage before and after implementing environmentally friendly practices a standard unit must be defined. The haggis manufactured by Macsween comes in a number of sizes depending on serving one to ten people or more (Macsween, 2012). The cost of producing haggis to serve one is going to be different from the cost of producing haggis to serve ten people so a weight based measure is more appropriate. For the purpose of this investigation, the standard unit will be taken as one tonne of haggis. This will aid to define energy required to produce one gram of haggis whether it is packaged to serve on or more people. 2.2. Required Data Quality The required data would need to reflect the usage of energy to produce haggis and the associated costs. It would be best if the data available were up to date and provided by a reliable source such as the business itself, a government service, an environmental agency or the like (Crawford, 2011). 3. Inventory Analysis (ISO 14041) Inventory analysis is essential to deciphering how much of certain materials and consumables are required to produce the standard unit defined already (Guinee, 2002). Through the course of the investigation it was found that finding the relevant data for inventory analysis was both time consuming and hard. Data that was found was often either inconsistent or only marginally applicable. For example, the price of oil used to fry haggis varies by a wide margin even for similar brands so fixating a price is a natural issue. Similarly another problem with data extraction is the fact that data is generally discrete, static and linear which indicates that the data is simplified due to underlying assumptions. Moreover, inputs such as electricity, natural gas and water are not restricted to one particular process and instead are required as inputs to various processes. The initial inventory analysis for manufacturing haggis is presented in the diagram below. Given the diagram above, it is clear that the relationship between holistic inputs such as electricity, water and natural gas as well as the relationship between holistic outputs such as landfill, anaerobic digestion, fat and effluent is too complicated to break down for each process. Furthermore, another grave problem that will be encountered while putting together the costs for these processes is the need for costs for each individual process. However, no such information is available and no such information can be extracted without performing a much detailed study over the issue which is beyond the scope of this text. Therefore it was decided to use the more holistic inputs and outputs as applying to the overall manufacturing scheme. This would also ensure that critical information such as electricity usage will be easily available from Macsween’s books and fiscal reports. The new schema for life cycle inventory (LCI) is shown below for reference. For the purposes of this investigation the diagram shown above will be used as the standard for costing. The costs for certain inputs and outputs would be used as per market determination while other costs may not be well defined. Costs that are not well defined will be estimated in order to proceed with costing. The situation is complicated by the fact that certain inputs are recycled locally on plant so a calculation of their per unit usage is a continuous process thereby yielding continuous and changing values. For example, water is recycled as per the Macsween sustainability reports but this means that its per unit usage to manufacture one unit of haggis keeps changing. The case of cardboard is similar in this respect too. It will be assumed that the holistic approach will cover this deficiency well enough to address the issue. 4. Costing of Known Issues 4.1. Inputs The costs for water are shown in Appendix ‘A’ and as per the appendix, the cost of water for Macsween’s use can be taken as ?1 per metric cube of water. The costs for the current and some previous years are shown in the table below. Period Water (m3) Cost (?) 2006/07 3264 3264 2007/08 3011 3011 2008/09 3323 3323 2009/10 3323 3323 Moreover, the effluent produced at Macsween had to be put into the public sewer system that in itself presents unique costs at 59 pence per metric cube of discharged effluent (Thames Water, 2012). The costs for the current and some previous years are shown in the table below. Period Effluent (m3) Cost (?) 2006/07 2651 1564 2007/08 2279 1345 2008/09 2768 1633 2009/10 3449 2035 Additionally Macsween hired a consultant that indicated that the size of the effluent meter was too large. Replacement of the meter has provided Macsween with a savings of 1500 pounds out of which half has been paid to the consultant annually. This has meant the removal of some 750 pounds per annum to the cost of water. Overall the total cost for water in this way becomes the cost of clean water and the cost of spewing out effluent and 750 pounds saved by the effluent meter change. This is presented in the table below for the current year as well as previous years. Period Cost (?) 2006/07 4078 2007/08 3606 2008/09 4206 2009/10 4608 It must be seen here that the amount of effluent discharge went up considerably in the last year leading to a massive increase in water based costs (around 9.56%). The cost of major power sources in use are shown in Appendix ‘B’ that delineates the rate of electricity as 3.05 pence per kWh. Based on this projection and the CCL data from Macsween the cost of electricity is shown below for the current and some previous years. Period CCL Performance kWh/tonne Cost per tonne Production (tonnes) Actual Cost (?) 2001/02 2141.87 65.32707 NA NA 2002/03 2394.47 73.03146 NA NA 2003/04 2543.98 77.59139 NA NA 2004/05 2361.17 72.01579 NA NA 2005/06 2188.66 66.75415 NA NA 2006/07 1989.86 60.69081 660.03 40058 2007/08 2712.15 82.72049 721.00 59641 2008/09 2493.04 76.03772 775.93 59000 2009/10 2197.15 67.01308 1029.58 68996 In addition the company has had to pay a CCL (climate change levy) at 0.485 pence per kWh in order to deal with the difference between its actual CCL performance and the projected CCL targets. However based on documentation and similar support for this scheme, Macsween has been eligible to get 65% of its levy back thus reducing the actual levy amount to only 35%. This cost is shown in the table below. Period CCL Target kWh/tonne CCL Performance kWh/tonne Difference Cost (?) 2001/02 2481.20 2141.87 339.33 NA 2002/03 2481.20 2394.47 86.73 NA 2003/04 2481.20 2543.98 62.78 NA 2004/05 2481.20 2361.17 120.03 NA 2005/06 2428.52 2188.66 239.86 NA 2006/07 2414.82 1989.86 424.96 47612 2007/08 2414.82 2712.15 297.33 -36390 2008/09 2296.256 2493.04 196.78 -25919 2009/10 2296.25 2197.15 99.10 17320 The total cost for electricity is therefore the cost of consumed electricity as well as the levied CCL difference. This final projection for the current year and some previous years is shown below. Period Final Cost (?) 2001/02 NA 2002/03 NA 2003/04 NA 2004/05 NA 2005/06 NA 2006/07 87670 2007/08 23252 2008/09 33081 2009/10 86316 4.2. Outputs In terms of outputs, effluent has already been taken care of with water given their related nature. The next issue at hand is that of landfill waste. Using landfill costs 48 pounds per tonne on average around Scotland. The total production of waste and the amount of landfill usage for the current and some previous years is shown below. Year Total waste Total recycled Rate Change Date Cost per tonne Cost (?) 2005 67.9 10.0 01.04.05 18 1042 2006 54.9 23.0 01.04.06 21 670 2007 58.4 28.4 01.04.07 24 720 2008 55.9 28.9 01.04.08 32 864 2009 108.2 97.8 01.04.09 40 416 2010 90.5 80.1 01.04.10 48 499 Details of the kind of waste being disposed off are attached as Appendix ‘D’. Anaerobic digestion depends on the type of system and the type of waste. Estimates range from 20 cubic metres – 800 cubic metres per tonne of waste (a metric tonne is around 2,204 lbs). One tonne of cow manure produces 36 cubic metres of biogas whereas the same amount of kitchen waste produces 140 cubic metres. Based on these estimates, the revenue end from gas composting was estimated so that one tonne of kitchen waste produced 140 cubic meters of gas out of which only 60% was methane and thus usable to give 6kWh per cubic meter of produced gas. This quantity was interfaced with the gas rates from Appendix ‘B’ at 4.8 pence per kWh to give the cost of natural gas recovered. Year Compost Produced (tonnes) Compost Revenue (?) 2005 0 0 2006 0 0 2007 0 0 2008 0 0 2009 15.7 633 2010 17.7 714 REVENUES Composting Revenue +?145 **?885.00 is what we have paid for composting, which if land filled would have cost ?1274.40 is a saving of ?389.40** (Taken from bottom of page) Since imposing tighter restrictions on their composting they have been able to reduce the charges incurred from ?250 down to ?105, a saving of ?145 per uplift. Using the newly purchased bailer machine, Macsween has been able to get a rebate on packaging worth a total of ?4280 as the bailer has been able to deal with cardboard as well as grounded hard plastics. Recycling cardboard has also helped Macsween save an additional ?2358 as cardboard previously being sent to landfills in now being recycled thus saving landfill costs. The cardboard they use, which is later bailed, is collected free of charge from BIFA. This saves Macsween the money that was previously spent when being sent to landfill. Based on a price list, provided by a waste collection company (www.wastecollection.co.uk/price_list.html), this would save approximately ?10 per 1100 litre bin of cardboard uplifted. This equated to roughly ?90 per tonne of cardboard that was previously sent to landfill. 5. Estimations of Unknown Issues Cooking oil is in extensive use around Macsween and has the potential to be reused for the production of bio-diesel but it remains unclear as to what is being done with the used cooking oil. The grade of the cooking oil determines the rate being offered to Macsween as shown in Appendix ‘C’. Another area of concern is the use of human resources in order to deal with the constant issues of environmental costing. Given the size of Macsween it is plausible to assume that one person of the staff has been dedicated for this effort (most probably James Macsween himself). If this dedicated employee has to be paid around 20 pounds per hour assuming a total usage of environmental accounting time of 260 hours per annum (5 hours per week) then the total cost amounts to ?5200. This cost is assumed constant for the last few years in order to simplify overall costing. 6. Costing The overall costing for Macsween’s environmental accounting is shown in the table below for the current year and previous years for which data was available. Cost Revenues Period Water Electricity Landfill Human Resource Cost Gas Revenue Misc. Revenue Annual Costing 2006/07 4078 87670 720 5200 0 0 -97668 2007/08 3606 23252 864 5200 0 0 -32922 2008/09 4206 33081 416 5200 633 0 -42270 2009/10 4608 86316 499 5200 714 6638 -89271 This information is shown below graphically: The deficit cost can be seen as increasing and then decreasing again which is attributable to changes in the electricity consumption. However it must be kept in mind that the revenue generation from environmental purposes is definitely going up which indicates that Macsween’s experience may be worthwhile for other companies to emulate as well. The revenues being brought in by environmental accounting are enough to cover up their base costs. Also, it is a little unreasonable to assume that the electricity consumption of the business will eventually turn over to environmentally friendly means so it is good enough that electricity costs are decreasing as it is. Environmental accounting is able to offer a highly needed insight into what areas need to be targeted the most in order to deliver more fiscally enabled results. 7. Bibliography Baumann, H. & och Tillman, A.-M., 2004. The hitchhiker's guide to LCA : an orientation in life cycle assessment methodology and application. New York: McGraw Hill. Bell, S. & Morse, S., 2008. Sustainability Indicators. Measuring the Immeasurable? 2nd ed. London: Earthscan. Biodiesel UK, 2012. Used cooking oil disposal. [Online] Available at: HYPERLINK "http://biodiesel-energy.co.uk/" http://biodiesel-energy.co.uk/ [Accessed 25 March 2012]. Biomass Energy Centre, 2012. Fuel costs per kWh. [Online] Available at: HYPERLINK "http://www.biomassenergycentre.org.uk/portal/page?_pageid=75,59188&_dad=portal" http://www.biomassenergycentre.org.uk/portal/page?_pageid=75,59188&_dad=portal [Accessed 25 March 2012]. Business Gateway, 2012. Home. [Online] Available at: HYPERLINK "http://www.business.scotland.gov.uk/bdotg/action/home?site=202&domain=www.business.scotland.gov.uk&target=http://www.business.scotland.gov.uk/" http://www.business.scotland.gov.uk/bdotg/action/home?site=202&domain=www.business.scotland.gov.uk&target=http://www.business.scotland.gov.uk/ [Accessed 23 March 2012]. Crawford, R.H., 2008. Validation of a Hybrid Life-Cycle Inventory Analysis Method. Journal of Environmental Management, 88(3), p.496–506. Crawford, R.H., 2011. Life Cycle Assessment in the Built Environment. London: Taylor and Francis. Dalal-Clayton, B. & Sadler, B., 2009. Sustainability Appraisal. A Sourcebook and Reference Guide to International Experience. London: Earthscan. 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Reduce your costs with environmental management accounting. Brochure. Edinburgh: Zero Waste Scotland. Appendix ‘A’ Water Type Average Cost UK Mains supply (2004/2005 figures) ?0.42 ? ?1.00/m3 * Chlorinated water ?0.75 ? ?1.50/m3 Softened water ?2 ? ?3/m3 Demineralised/deionised water ?2 ? ?3/m3 Condensate ?3 ? ?4/m3 Steam ?10 ? ?12/tonne * standard metered tariff Appendix ‘B’ Fuel Price per Unit kWh per unit pence per kWh Wood chips (30% MC) ?100 per tonne 3,500 kWh/t 2.9 p/kWh Wood pellets ?200 per tonne 4,800 kWh/t 4.2 p/kWh Natural gas 4.8 p/kWh 1 4.8 p/kWh Heating oil 60p per litre 10 kWh/ltr 6.0 p/kWh LPG (bulk) 50p per litre 6.6 kWh/ltr 7.6 p/kWh Electricity 3.05 p/kWh 1 3.05 p/kWh Appendix ‘C’ Pence per litre FFA 80 New Oil (virgin) 77.25 0.5 74.50 1 71.75 1.5 69 2 66.25 2.5 63.50 3 60.75 3.5 58 4 55.25 4.5 52.50 5 49.75 5.5 47 6 44.25 6.5 41.50 7 38.75 7.5 36 8 33.25 8.5 30.50 9 27.75 9.5 25 10 22.25 10.5 19.50 11 16.75 11.5 14 12 11.25 12.5 8.50 13 5.75 13.5 3 14 .25 14.5 0 15 Appendix ‘D’ Year Plastic Card Fat Compost Landfill Waxed paper Aluminium cans 2005 0 10 0 0 57.9 0 0 2006 5.3 10.4 7.3 0 31.9 0 0 2007 7.7 11.5 9.2 0 30 0 0 2008 5.9 14.1 8.9 0 27 0 0 2009 26.7 38.2 17.2 15.7 10.4 0 0 2010 16.5 26.2 18.1 17.7 10.4 1.4 0.2 Read More