Welcome to the second part of AIChE Academy on Sustainability Return on Investment
or S-ROI. I’m Lise Laurin of Earthshift Global back to share some examples.
We did a study outside of Tokyo looking at using waste as biomass to create fertilizer,
methane and compost. The government was considering several ways of using biomass sustainably.
This was our first study.
Here are all the interlinkages in this process. In addition to providing the local farmers with
compost and fertilizer, the plant was providing analysis services—they analyzed the soil and
provided recommendations for how much fertilizer to apply. Here are some of the costs
and benefits that would not have been captured in a traditional Return on Investment. We used
an LCA to assess the health benefits and greenhouse gas emissions. In the case of the
health benefits, we used 3 times the per capita GDP of Japan to value each Disability Adjusted
Life Year. The Greenhouse Gas emissions were assessed using market values. There is a risk of
eutrophication, or too many nutrients in the surrounding watershed, if farmers overapply the
fertilizer. To assess the cost of this risk, we used the abatement costs from literature.
Let me explain this graph a little bit. The x-axis shows the net present value return on
investment after 20 years. The lightest color is showing the full range of probability for the net
present value. There is a 90% probability of the results indicated by the next lighter color,
and 50% probability it will be within the darkest range. It’s like a flattened probability
density curve. We can see the major stakeholders identified in the study on the
y-axis. We see the crop farmers are the likeliest winners, due to the fact that they can now brand
their crops as organic. The community wins due to the reduction in human health impacts and
the fact that they didn’t have to construct another waste treatment facilty. The biogas
operators will be profitable, but are actually the stakeholder with the least to gain. We reran the
study with the communitiy picking up the tab for plant infrastructure. That still showed a win-win
situation with more rapid return on investment for the plant operator, making it more attractive
to an investor. Here’s another example. We did this study in the mountains of Japan looking at
adding a gasification system to a sawmill. Here they were considering creating energy from
forest residue and waste wood. Here we see the results of this study. In this case it’s not a
win-win situation. The composters and paper manufacturers have a small risk of losing some
of their supply, but the costs relative to their size are not large. The community stands to gain,
primarily from increased tourism. Japan has a concept of “Biomass towns” and tourists
like to visit these towns. The woodcutters will now be able to bring in the wood residue to the
sawmill for use in the gasification system. This is going to bring them added revenue.
The cattle farmers are an unexpected stakeholder in this process. Although they
weren’t in the room for the workshop, they were identified as a major potential loser. The cattle
farmers in this part of Japan feel that sawdust is the best possible bedding for their dairy cows,
and the potential that the sawdust would go into the gasification system created a risk that their
milk production would go down. There are a number of ways that the cattle producers could
be moved from the losing part of this graph to the neutral or a winning side. The return to the
sawmill assumes that they don't burn sawdust. Since the gasification system will be supported
by the government, they could prohibit the burning of sawdust in the system. The Japanese
government provides a lot of subsidies, so they could subsidize the sawdust, giving the sawmill
a financial incentive not to burn it. Or, since other parts of the globe prefer other bedding
materials, funds could be set aside to research alternative bedding materials.
This shows how a study can identify a losing stakeholder and encourage changes that
improve the situation for that stakeholder. The sawmill itself shows opportunity for
improvement. There is less than 5% probability that the sawmill will lose money.
Digging a little deeper, we found that the reason that they might lose money is a risk that the
company wouldn’t hire another person to run the sawmill. Should that happen, the mill was at
risk of misprocessing, poor morale, and accidents.
Here we’re looking at the same net present value in a different way. The lines show the
net present value calculated through the year on the x-axis, so year 2030 represents the values
we saw on the previous page. The green line at the top shows the best case and the red line at
the bottom shows the worst case. There is a 90% probabilty that the results will be
in between these two lines. We can see that there is this small probability the mill is going to
lose money. But what if the cost of an additional employee was added to the study?
Here you can see the results adding the cost of that additional employee. We now see that the
red line has pulled up and the sawmill will make money no matter what. What had been a risky
situation now carries no risk.
I hope you’ve seen from these brief examples that S-ROI is effective at capturing all three
pillars of sustainability: social, environmental and economic. In the first case, we included
the effects of greenhouse gas emissions and human health impacts along with eutrophication.
In the second case, we were able to use a community expert to apply the value system of
the cattle farmer. The sawmill owners could include their own value system to understand
the benefits and risks to their bottom line. The assessment also looked at the uncertainties of
misprocessing and accidents, and included uncertainty on electricity and fuel prices as well.
We were able to refine this program by adding an employee. The government has since had the
opportunity to consider how to handle the cattle farmers. In the first study, we looked at having
the community pay for the infrastructure. The municipal leaders joined in the discussion,
resulting in a better understanding of both systems, the risks and benefits for the
community. In some of our studies, the LCA results dominate the results. In others, they
contribute much less. Over and over we find that the more comprehensive and robust a program
or project is, like the first study, the more likely it will show a benefit. The S-ROI process can
help refine projects by showing where those potential risks are.
Thank you for joining me for S-ROI Part 2. I hope you’ve enjoyed these sessions.
For more information and training on S-ROI and other sustainability assessment methods,
please visit our website, earthshiftglobal.com, or contact me using the email and phone number
on this screen. You have the power to make change!