New Industrial Model Supporting Calculations for the New Industrial Model Report
Contents Interface Improvements Potential for Europe Potential for Top 20 European Manufacturers 1
Methodology for Interface Calculations European manufacturing operations examined Actual data used: 2012 full year costs and quantities Adjusted to include renewable energy contracted for 2014 1996 quantities (for baseline and to normalise for changes in production volumes) Figures cross-checked against company total figures Renewable energy costs compared with industry figures 2
7.6M annual cost savings were achieved in 2012 by Interface Europe using the New Industrial Model M p.a. 8 7 6 5 4 3 2 1 0 5.8 12% reduction in yarn Cost Savings by Interface Europe in 2012 compared to 1996 0.78 0.11 Energy efficiency - 40% reduction in energy use Renewable energy 1.14 Recycled and biobased yarn 7.61 Total net saving Sources: Interface data; Lavery Pennell analysis 3
35,500 tco 2 e were also saved in 2012 compared to 1996 tco 2 e p.a. 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 11,400 12% reduction in yarn Greenhouse Gas Emission Reductions by Interface Europe in 2012 compared to 1996 6,800 Energy efficiency - 40% reduction in energy use 7,050 Renewable energy 10,300 43% of materials recycled or bio-based 21,700 13,850 Total saving Life cycle footprint reduction Interface manufacturing footprint reduction Sources: Interface data; Lavery Pennell analysis 4
3 jobs were created through Interface Europe s switch to renewable energy Approach Fossil fuel (coal and gas) employment rate of 0.11 jobs/gwh Also assumed to apply for nuclear Average figure for wind and biomass employment of 0.205 jobs/gwh Difference (i.e. uplift of 0.095 jobs/gwh) used in calculations E.g. for Interface, jobs = electricity use of 32.7GWh p.a. x 0.095 jobs/gwh= 3 jobs Jobs per GWhof electricity generated 1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Additional 0.095 jobs/gwh Coal 0.11 Gas Empirical Evidence Wind (source 1) 0.205 average Wind (source 2) Biomass (source 1) Biomass (source 2) Solar photovoltaic penetration low so not included in calculations Solar PV (source 1) 1.21 Solar PV (source 2) Source: Kammen, D.M., Kapadia, K., Fripp, M., 2006. Putting Renewables to Work: How Many Jobs Can the Clean Energy Industry Generate?, RAEL Report, University of California Berkeley. Available at http://rael.berkeley.edu/sites/default/files/very-old-site/renewables.jobs.2006.pdf 5
Contents Interface improvements Potential for Europe Potential for Top 20 European Manufacturers 6
Methodology for Europe Calculations World Bank statistics used 2012 figures or most recent available used Statistics used were GHG emissions, GDP, manufacturing GVA, energy use Energy spend of 1.9% of revenue found for the UK in the Next Manufacturing Revolution study* and used for all European countries Empirical evidence from around the world of savings achieved were researched This included drawing on the resource efficiency data contained within the 2013 Next Manufacturing report*co-authored by the University of Cambridge s Institute for Manufacturing Renewable energy jobs calculated as done for Interface using uplift of 0.095 jobs/gwh * Lavery, G., Pennell, N., Brown, S., Evans, S., 2013. The Next Manufacturing Revolution: Non-Labour Resource Productivity and its Potential for UK Manufacturing. Available at http://www.nextmanufacturingrevolution.org/nmr-report-download/ 7
Europe was defined as the 51 countries in the continent Albania Andorra Armenia Austria Azerbaijan Belarus Belgium Bosnia and Herzegovina Bulgaria Channel Islands Croatia Cyprus Czech Republic Denmark Estonia Faeroe Islands Finland Countries Included in Europe Figures France Georgia Germany Greece Hungary Iceland Ireland Isle of Man Italy Kazakhstan Latvia Liechtenstein Lithuania Luxembourg Macedonia, FYR Moldova Monaco Montenegro Netherlands Norway Poland Portugal Romania Russian Federation San Marino Serbia Slovak Republic Slovenia Spain Sweden Switzerland Turkey Ukraine United Kingdom 8
A 20% energy efficiency improvement opportunity was used consistent with the literature % of Energy Use (columns) 30% Energy Savings Opportunity IRR (diamonds) 60% 20% figure used 25% 20% 15% 23% 15-20% 15-20% 15% 24% 16% 50% 40% 30% 10% 20% 5% 10% 0% EEDO EEF Carbon Trust UNIDO DECC Ellen Macarthur Foundation 0% Report date: 2012 2013 c. 2010 2010 2012 2012 Geography: UK UK UK Global UK Global Scope: Industry Industry Large organisations Energy intensive industrial sectors Industrial sector, Electricity only Mobile phone manufacturers Source: Lavery, G., Pennell, N., Brown, S., Evans, S., 2013. The Next Manufacturing Revolution: Non-Labour Resource Productivity and its Potential for UK Manufacturing, p. 34. Available at http://www.nextmanufacturingrevolution.org/nmr-report-download/ 9
Sub-sectoralanalysis by the Next Manufacturing Revolution also found a 20% saving opportunity in the UK Energy Efficiency Savings (%) 45 40 Best practice companies Energy Savings for UK Manufacturing Best practice companies, averaged across all manufacturing sub-sectors, have achieved savings of 40% for energy efficiency 35 30 25 20 15 10 5 Industry-wide average company efforts since 2002 Manufacturing sector average background improvement 20% energy saving opportunity All manufacturers have, on average, only achieved 20% savings through energy efficiency 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Sources: Department of Energy and Climate Change, Energy Consumption UK 2010, 2012; Office of National Statistics, Detailed Indices of Production, 2011; Next Manufacturing Revolution Survey responses; Literature review 10
The number of energy efficiency jobs was based on empirical evidence Approach 6.5 jobs per 1M investment in energy efficiency used (see graph) conservative figure used Energy equipment assumed to last for 10 years, after which it is replaced at further capital cost Therefore 6.5/10 = 0.65 ongoing fulltime jobs per 1M investment in energy efficiency This 0.65 figure used for the calculation of energy efficiency jobs Jobs per 1M invested in Energy Efficiency 16 14 12 10 8 6 4 2 0 6.5 used in analysis Department of Energy and Climate Change, UK, 2012 Empirical Evidence Considered high because domestic EE is more labourintensive Consumer Focus, UK, 2012 French Ministry for Ecology, Energy, Sustainable Development and Spatial Planning, 2011 Source: Lavery, G., Pennell, N., Brown, S., Evans, S.,2013. The Next Manufacturing Revolution: Non-Labour Resource Productivity and its Potential for UK Manufacturing, p. 35. Available at http://www.nextmanufacturingrevolution.org/nmr-report-download/ 11
Materials efficiency opportunities were calculated using the research findings of the Next Manufacturing Revolution for the UK Approach The Next Manufacturing Revolution study found 6.53B p.a. in materials savings opportunity between average and good practice on a subsector basis for UK manufacturing (see graph) Total UK manufacturing sector revenue in 2011 was 511.9B in 2011 6.53B represents 1.28% of UK manufacturing revenue For comparison, 1.28% of revenue is less than half of the saving achieved by Interface by reducing yarn use by 12% This 1.28% saving was used to calculate the materials efficiency opportunity across European manufacturers Materials Efficiency Savings Identified in the Next Manufacturing Revolution Study for the UK B p.a. 7 6 0.48 0.45 5 4 3 5.6 6.53 2 1 0 Remanufacturing profit before tax potential Waste reduction potential (avoided loss of raw materials) Packaging saving potential Total Sources: Lavery, G., Pennell, N., Brown, S., Evans, S., 2013. The Next Manufacturing Revolution: Non-Labour Resource Productivity and its Potential for UK Manufacturing, p. 35. Available at http://www.nextmanufacturingrevolution.org/nmr-report-download/; Office for National Statistics, 2012. Annual Business Survey, Section C Manufacturing, release date 15 November. 12
A renewable energy cost premium of 20% was used Approach Governments set support levels for renewables to provide a modest return on investment, thereby ensuring value for the taxpayer and avoiding profiteering This is usually of the order of a 7 year payback period (i.e. 14% IRR) However, renewable energy project developers often find this level of return inadequate to cover the level of risk involved A 20% price premium for the renewable energy produced increases the IRR to a more commercial 17% Therefore a 20% price premium for renewable energy is assumed 20% is more conservative than the 10% premium being paid by Interface for its renewable energy in Europe Source: Lavery Pennell experience 13
To be conservative, renewable energy GHG emission savings were not counted where countries have >80% low emission generation Approach Where countries had less than 20% of their electricity generated from coal, natural gas or oil in 2011, no greenhouse gas emission savings were counted Note: France, Sweden and Switzerland have significant nuclear generation so the cost of switching to renewable energy was included in the cost calculations for these countries but not the GHG savings Countries with <20% Generation from Coal, Gas or Oil in 2011 Albania France Iceland Norway Sweden Switzerland Source: World Bank, 2013. Environment 3.7 World Development Indicators: Electricity production, sources, and access. Available at http://wdi.worldbank.org/table/3.7# 14
For European manufacturing, a potential 100B p.a. of economic benefits could be created by the New Industrial Model M p.a. 140 120 100 80 Economic Benefits for European Manufacturing 27.6 22 Estimated capex of 66B 60 40 94.4 100 20 0 Material efficiency improvement (1.28% of revenue) 20% energy efficiency improvement 100% renewable energy Total net benefit Source: Lavery Pennell analysis 15
1,188 MtCO 2 e p.a. saving in the European manufacturing sector, or 14.6% of Europe s total GHG emissions, is possible MtCO 2 e p.a. 1,400 GHG Reduction from European Manufacturing 1,200 1,000 800 600 Note: No GHG emission savings included from materials reductions this would add to these figures 914 1,192 400 200 0 278 20% energy efficiency improvement 100% renewable energy Total net benefit Source: Lavery Pennell analysis 16
168,000 skilled jobs could be created in Europe Jobs 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 43,000 20% energy efficiency improvement Jobs in Europe from New Industrial Model 125,000 168,000 100% renewable energy Total net benefit Source: Lavery Pennell analysis 17
Contents Interface improvements Potential for Europe Potential for Top 20 European Manufacturers 18
Methodology for top 20 European Manufacturer Calculations Approach Examined top 20 manufacturers based in Europe by revenues Data gathered from annual and sustainability reports for most recent years available Energy spend per company was calculated using the average energy spend as a % of revenue for the relevant manufacturing sub-sector determined in the Next Manufacturing Revolution analysis Assumed that 32% of energy use is electricity 32% is the figure for the UK manufacturing sector according to DECC statistics for 2010 Examined the potential of the New Industrial Model for each company separately, taking into account the progress of each on energy efficiency, uptake of renewable energy and sources of electricity in their home countries Energy efficiency jobs, RE jobs RE cost premium, and material efficiency opportunity were calculated using the methodology used for the whole-of-europe figures No GHG savings from RE assumed for companies headquartered in countries with <20% generation from coal, gas or oil Volkswagen Daimler Siemens BASF BMW ArceloMittal Nestle Peugeot Bosch Top 20 European Manufacturers ThyssenKrupp EADS Unilever Novartis Renault Saint-Gobain Nokia LyondellBasell Bayer Hoffmann-La Roche Sanofi Sources: Company Annual Reports; DECC, 2010. Energy Consumption in the UK, Table 4.6c(i) Industrial Energy Consumption at two digit SIC2007 level by fuel type,; http://en.wikipedia.org/wiki/list_of_largest_european_companies_by_revenue 19
Energy spend for each country was calculated based on sub-sector average figures for the UK Approach The Next Manufacturing Revolution study examined the energy spend for each manufacturing sub-sector for the UK Energy spend (% of revenue) 6% 5% Energy Spend by Sub-Sector These figures were used for Europeanheadquartered manufacturers on the basis that their technology mix and uptake of energy efficiency is likely to be similar to that of companies within the UK Figures applied as appropriate for the primary business of the individual company 4% 3% 2% 1% 0% Other transport equipment Auto Machinery Pharmaceutical Food Electrical equipment Chemicals Basic metals Mineral products Source: Lavery, G., Pennell, N., Brown, S., Evans, S.,2013. The Next Manufacturing Revolution: Non-Labour Resource Productivity and its Potential for UK Manufacturing, p. 35. Available at http://www.nextmanufacturingrevolution.org/nmr-report-download/ 20
The Next Manufacturing Revolution study showed the range of energy savings achieved historically by blue chip companies Annual Average Energy Savings (Compound) 14% 12% 10% Adnams Energy Intensity Reduction by Manufacturers 75% Company 10% reduction 25% reduction 50% reduction 75% reduction 8% 6% 4% United Biscuits Komatsu Pepsico UK & Ireland 10% 25% Coca Cola 50% Nestle Toyota EU Henkel P&G Danone ST Microelectronics Unilever 2% 0% General Mills 0 5 10 15 20 25 30 Duration of Efficiency Improvements (Years) Note: Un-named datapointsare companies who provided data confidentially or are not named for other reasons; all named companies are plotted based on publicly available information. Sources: Next Manufacturing Revolution Survey; Next Manufacturing Revolution literature review; Department of Energy and Climate Change, 2012. Energy Consumption UK 2010; Office of National Statistics, 2011. Detailed Indices of Production. 21
Good practice companies in many sub-sectors were found to have achieved over 40% savings over time horizons of 10 to 20 years Total improvement to date (%)(diamonds) 70% Energy Intensity Improvement by Sub-Sector Years of improvement (lines) 25 60% 50% 40% 40% improvement 20 15 30% 20% 10% 10 5 0% 0 Food, drink & tobacco Textiles, leather, clothing Paper, printing, publishing Chemicals Mineral products Iron & steel Non-ferrous metals Mechanical engineering & metal products Electrical & instrument engineering Vehicles Other industries Source: Lavery, G., Pennell, N., Brown, S., Evans, S., 2013. The Next Manufacturing Revolution: Non-Labour Resource Productivity and its Potential for UK Manufacturing, p. 29. Available at http://www.nextmanufacturingrevolution.org/nmr-report-download/ 22
Energy efficiency opportunity calculations were done by company to allow for their historical improvements 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 40% Example Calculation of Energy Efficiency Opportunity for a Top 20 European Manufacturer 24% (varied by company) Where this figure was not available, 20% was used Energy efficiency potential Saving by company to date Remaining opportunity (used (from company sustainability to estimate potential) reports) 16% (varied by company) 23
Renewable energy opportunity calculations similarly incorporated renewable energy already being used by each company 120% 100% 80% Example Calculation of Renewable Energy Opportunity for a Top 20 European Manufacturer 8% (varied by company) 60% 40% 20% 0% 100% Electricity used (energy used from sustainability report x32%) Company's current use of renewable energy (from company sustainability reports) 92% (varied by company) Remaining RE opportunity (used to estimate potential) 24
10.9B p.a. of economic benefits were identified for the top 20 European manufacturers from the New Industrial Model M p.a. 16 14 12 10 8 6 4 2 0 10.4 Material efficiency improvement (1.28% of revenue) Economic Benefits for Top 20 European Manufacturers 3.8 3.3 Estimated capex of 9B 20% energy efficiency improvement 100% renewable energy 10.9 Total net benefit Source: Lavery Pennell analysis 25
288 MtCO 2 e p.a. could be saved by the top 20 European manufacturers, which is 3.5% of Europe s annual GHG emissions MtCO 2 e p.a. 350 GHG Reduction from Top 20 European Manufacturers 300 250 200 Note: No GHG emission savings included from materials reductions this would add to these figures 150 100 264 288 50 0 24 20% energy efficiency improvement 100% renewable energy Total net benefit Source: Lavery Pennell analysis 26
33,700 skilled jobs could be created by Europe s top 20 manufacturers Jobs 40,000 35,000 30,000 25,000 Potential Jobs Created by Top 20 European Manufacturers from New Industrial Model 20,000 15,000 10,000 27,800 33,700 5,000 0 5,900 20% energy efficiency improvement 100% renewable energy Total net benefit Source: Lavery Pennell analysis 27
Further Resources The New Industrial Model report can be accessed at http://www.interfaceflor.co.uk/web/sustainability/newindustrialmodel The full Next Manufacturing Revolution report can be downloaded from http://www.nextmanufacturingrevolution.org/nmr-report-download/ More information on Interface is available at http://interfaceglobal.com/ 28