No-Cost/Low-Cost Resource Efficiency Savings Opportunities ...randd.defra.gov.uk/Document.aspx?Document=EV02036_8447...Resource Efficiency’ estimated the total annual value of no‐cost

© Oakdene Hollins Ltd

No-Cost/Low-Cost Resource Efficiency

Savings Opportunities

Is there an evidence base to update the

valuation?

for

Defra October 2009

© Oakdene Hollins Ltd

This report has been prepared by: David Fitzsimons & Caroline Bartlett Checked as a final copy by: Katie Deegan Reviewed by: ………………………………………. Date: 13th October 2009 Contact: [email protected] File reference number: AEA-01 186 Re-valuation issue3.doc

Oakdene Hollins provides clients with technical and economic studies concerned with: ● management of wastes for recycling or energy recovery ● measurement of environmental impacts including LCA (life cycle assessment) ● policy analysis in the resource efficiency and global warming arenas ● innovation management, especially of ‘clean technologies’ ● statistical analysis and interpretation ● in-depth market studies. For more information visit www.oakdenehollins.co.uk

Printed on recycled paper

© Oakdene Hollins Ltd October 2009

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Contents

1 Summary 3 1.1 Waste Savings 4 1.2 Energy Savings 5 1.3 Water Savings 6

2 Introduction 7 2.1 Financial Valuation of Benefits 7

3 Waste Savings 8 3.1 Survey Data 8 3.2 Sectoral Changes 10 3.3 Financial Valuation Issues 11 3.4 Proposed Re-valuation of Waste Savings 13

4 Energy Savings 15 4.1 Introduction 15 4.2 Climate Change Levy 18 4.3 Proposed Re-valuation of Energy Savings 18 4.4 Energy Efficiency 18 4.5 Transport Sector 20 4.6 Case Studies 22

5 Water Savings 23 5.1 Introduction 23 5.2 Evidence for Change 23

6 Conclusions 25


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1 Summary

The 2007 study for Defra ‘Quantification of the Business Benefits of Resource Efficiency’ estimated the total annual value of no‐cost / low‐cost resource efficiency savings to range between £5.6 billion and £7.4 billion (mean £6.4 billion1). Energy (52%) and waste (41%) were the two areas where the greatest savings opportunity was identified. This current report investigates the evidence for updating the 2007 estimate without repeating the extensive sector‐specific consultation that was necessary for the original study. We conclude that the evidence to justify a partial revaluation of the original estimate of £6.4 billion upwards to £7.3 billion in 2009 (Table 1) is insufficient.

Table 1: Estimated savings opportunities, 2006 base year and potential 2009 re-valuation

Resource

2006 2009 Estimated savings

opportunity (£M)

Estimated savings opportunity

(£M)

% of total estimated savings

Waste 2,659 41 3,075

Energy 3,349 52 3,826

Water 441 7 441

Total £6,449M 100% £7,342M To complete a revaluation, there are three components for which evidence is required: 1. Any change in the baseline quantity of resources used within the scope

of the no‐cost/low‐cost measures 2. Any change in the uptake by business organisations of the type of

resource efficiency measures included in the original study 3. Any change in the prices used to value resources and the waste

management services associated with them.

1 This represents the current short term (annual) resource efficiency savings opportunity and would remain (all else remaining equal) year on year if no intervention were undertaken.


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With regard to the first component, this study finds that there is some evidence of an improving trend in resource efficiency (notably for energy) but that it is not possible to attribute this trend to the uptake of no‐cost/low‐ cost resource efficiency measures. With regard to the second component, there are only isolated case study examples to indicate whether uptake has changed. For the third component, there is a sufficient level of evidence to revalue the prices for resources including price changes caused by increases in Landfill Tax. If a revaluation is required then it will be necessary to test whether the quantities underlying the £6.4 billion estimate have changed at a sector level since 2006.

1.1 Waste Savings

Waste savings are estimated by identifying sector‐specific waste tonnages, prices for waste management services, a varying level of hidden costs in excess of the waste management costs, and a percentage improvement based on case study evidence. We found that the two regional surveys of commercial and industrial wastes completed since 2006 (Wales and North West England) could not be reconciled with the 2002/03 national waste survey data. However, both surveys indicated that waste tonnages had not increased significantly and that there had been a switch away from industrial waste to service sector type wastes. Although we did not find evidence to alter the tonnage of wastes generated by each sector, there was a case for increasing the waste management costs by the increase in Landfill Tax since 2006. Not all of the increase of £19 per tonne will be passed through to businesses as more wastes are diverted away from landfill: nevertheless it is a reasonable basis on which to reflect the increased costs of waste management services. In addition the hidden costs, representing the value embedded in materials and semi‐finished products that are discarded, can be inflated using a factory gate pricing index. Using this index increases the price of hidden costs by 10.9%. Taking account of these changes increases the valuation for waste savings opportunities by £416 million from a total of £2,659 million to £3,075 million (Table 2).


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Table 2: Revised valuations for resource efficiency savings from waste including inflation factor for hidden savings

WASTE Without hidden savings (£M)

With hidden savings (£M)

2007 study (Table 3.2) 881 2,659

Proposed 2009 re-valuation 1,103 3,075

1.2 Energy Savings

Energy savings opportunities are estimated using sector‐specific data for energy consumption by type of fuel, price per fuel type and a percentage improvement based on case study evidence. Since 2006 there has been a significant increase in energy costs. Compared to the price data used in the original study, gas prices have increased by 16.5%, gasoil by 19.1%, electricity, heavy fuel oil and coal by 43.6% and road fuels by 5.35%. We note that road fuel prices are an especially sensitive element of the valuation. Had a January 2009 price been used instead of a May 2009 price the increase in value would have been reduced by £92 million (19% of the increase). Without altering the mix of fuels used by each sector, the pricing data were revised and the inflation increases for the Climate Change Levy (CCL) included. Although there is evidence of year‐on‐year improvements in fuel efficiency of approximately 1% in industry, ca. 4% in the services sector and 3‐4% (by one measure) in the transport sector, there is no evidence to identify how much of this improvement can be attributed to no‐cost/low‐cost resource efficiency measures. The impact of these changes is shown in Table 3.

Table 3: Impact of price changes on savings opportunities, with and without CCL

ENERGY Estimated savings

opportunity excl CCL (£M)

Estimated savings opportunity incl CCL

(£M)

2007 study estimates 3,257 3,349

Proposed 2009 (Q1) re-valuation

3,731 3,826


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1.3 Water Savings

Water savings are estimated using consumption and price data from a wide variety of sources some of which are sector‐specific. The publication by Defra of a water strategy in February 2008, and of a water resources strategy by the Environment Agency in 2009, has given new impetus to the drive for improved water efficiency. Although both reports have an evidence base of data for household water consumption, estimating commercial and industrial water consumption is made more difficult by the more than 4,000 abstraction licenses held for industrial uses. A growing database of efficiency case studies held by Waterwise and UKWIR will continue to provide useful data, but we concluded that there is insufficient evidence to re‐value the original estimates. Domestic water prices have increased by 7% and 5.8% in the past two years but we are unconvinced that this level of increase could be applied to industrial users in particular.


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2 Introduction

2.1 Financial Valuation of Benefits

In a study completed in October 20072 for Defra, Oakdene Hollins in association with Grant Thornton calculated a mean value of £6.4 billion for the resource efficiency interventions that require no or negligible capital investment. Such savings represent, in most circumstances, the ‘lowest hanging fruit’ for managers seeking to improve profitability by reducing costs in their organisations. The savings were classified under three resources; energy, waste and water. These savings are shown in Table 4.

Table 4: No-cost/low-cost resource efficiency savings

Resource Estimated savings opportunity (£M)

% of total estimated savings

Energy 3,349 52

Waste 2,659 41

Water 441 7

Total £6,449M 100%

Source: Table A2 ‘Quantification of business benefits from resource efficiency’ October 2007 Defra

This current report investigates whether any studies or data published since 2006 provide evidence that the value of £6.4 billion for available resource efficiency savings should be updated.

2 ‘Quantification of the business benefits of resource efficiency’ Defra October 2007


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3 Waste Savings

3.1 Survey Data

In the 2007 study, the following sensitivity was identified3: “The estimate of waste savings opportunities within the commercial and industrial (C&I) sectors rely heavily on the Environment Agency’s 2002/03 C&I waste survey. This data is now four to five years old and hence rather dated. Unfortunately, in the majority of subsectors no surveys have been undertaken to supersede this data and hence it was necessary to project this data forward to 2006/07, which introduces a significant opportunity for error. To address this, key stakeholders were consulted to validate the projections and the estimated savings opportunities”. Two surveys of commercial and industrial wastes have since been published to supplement the two earlier national surveys managed by the Environment Agency; one covering North‐West England4 and a second covering Wales5. In addition, ADAS has published a study of regional waste arisings based on the findings of the North West England survey data6. In order to make a comparison between the findings of the Environment Agency surveys of 1998 and 2003 with the 2006 survey in North West England, ADAS compared the waste generated per employee in the largest sectors. A comparison of absolute levels of waste generation was found to be problematic, as the regional distribution of types of business is unlike the distribution of businesses nationally. The method of using a common comparator of waste per employee over time presents difficulties, since there has been a long term trend for employment to fall in most manufacturing sectors as labour is displaced by capital equipment. Nevertheless, it does allow for comparison in a sector that has been experiencing a high rate of growth. The selective data provided by ADAS are significant because of their scale of change (Table 5).

3 ibid page XV Summary section. 4 ‘Study to fill evidence gaps for commercial & Industrial waste streams in the northwest region of England’ May 2007 For North West Regional Technical Advisory Board by Urban Mines. 5 ‘Survey of Industrial & Commercial Waste Arisings in Wales’ May 2009 for the Environment Agency (Wales) by Urban Mines. 6 ‘Study into Commercial and Industrial Waste Arisings’ April 2009 for East of England Regional Assembly by ADAS.


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Table 5: Waste per employee, 1998 to 2006

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

1998/99 2002/03 2006

Food and drinkChemicalsRetail/wholesaleOther services

Source: ADAS ‘Study into commercial and industrial waste arisings’ Page 12

The reduction in the Food and Drink sector, from 15 tonnes of waste per employee in 2002/03 to just over six tonnes in 2006, is not a change that can be attributed to resource efficiency. It is largely explained by differences in survey methods. ADAS identify that the 2006 survey excluded effluent tankered off‐site. Liquid wastes are a common type of waste in an industry which uses water as a feedstock. It is not stated what proportion of the difference consists of effluent wastes. The 2006 survey was smaller, accounting for 150 fewer companies than the equivalent 2002/03 survey by the Environment Agency. The Agency survey included two very large users of waste, and these users were excluded from the 2006 survey, as were smaller companies employing five or fewer people. The Chemicals sector’s reduction from 13.7 to 11.8 tonnes of waste per employee over seven years correlates with industry‐wide resource efficiency changes. The sector typically produces a 2.5% increase in energy efficiency year‐on‐year. Applying the same 2.5% annual improvement in resource efficiency to waste per employee is sufficient to reduce the 1998 data to that reported in 2006. Nevertheless, ADAS note that the 2006 survey excluded wastes generated by chemical companies that were directed to internal waste management systems such as lagoons. The Retail sector data are striking for the apparent fall in waste per employee. ADAS identified that the sample size was significantly smaller ‐


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and its distribution different ‐ from the Agency survey of 2002/03, thereby introducing a requirement to normalise the 2006 data. The North West survey data were used by ADAS to compare the overall results by region (Table 6).

Table 6: Survey data used by ADAS

Source: ADAS ‘Study into commercial and industrial waste arisings’ Page 25

The largest regional differences are explained by the closure of power stations in the East Midlands and of a large steel plant in the North East. Although there are differences in survey methods, the work by ADAS suggests that there has been a reduction of between 5% and 16% in the weight of waste generated in the Commercial and Industrial sectors. This might reflect the trend of a reducing industrial base and increasing commercial business activities. In April 2009 Urban Mines published a comprehensive survey of commercial and industrial wastes in Wales. It concluded: “brief comparison with data from the previous survey delivered in 2002/03 does indicate that there has been no significant change in the total waste arisings, but this should be seen in the context of a period of strong growth in the Welsh economy and with a slight increase in business population compared to 2002/03, particularly in the service sectors but also in some manufacturing sectors too.”

3.2 Sectoral Changes

Both of these detailed and carefully designed surveys imply that there is no case to revise upward the tonnage of wastes that might be reduced or


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redirected to recycling through resource efficiency work. There may however be a case for a small downward revision. Both surveys provide an evidence base from which to make comparisons on a sector level in order to identify whether the amount of waste in one sector has changed in comparison with others. To do this the samples for each region need to be reconciled with the samples used for the national survey conducted by the Environment Agency. The approach taken by ADAS ‐ measuring the waste per employee ‐ is probably the most satisfactory method for doing this, although the differences in survey methods appear to introduce significant variances at the sector level. We are unconvinced that the regional surveys can be reconciled with the national survey for some of the larger heterogeneous sectors such as Food and Drink. We conclude that the most recent survey data for waste generation by sector have the potential to redistribute the estimates made in the 2007 study. However, to do so requires a satisfactory method for reconciling the regional surveys with the previous national ones. A national survey of commercial and industrial waste is proposed during 2010.

3.3 Financial Valuation Issues

There have been some changes to the costs of waste management since 2006. The most significant of these changes is that landfill disposal costs have increased by at least the increased rate of Landfill Tax. In some regions, gate fees for landfill may have increased above this level in response to its relative scarcity.

Table 7: Rates of Landfill Tax, 2006 to 2009

Year Landfill Tax rate (active waste)

2006/07 £21

2007/08 £24

2008/09 £32

2009/10 £40 Source: Customs & Excise

The 2007 study used waste management costs of £55 per tonne. However, the waste management cost formed only a small proportion of the total


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value of potential savings, since a variety of multipliers were used in each sector to take account of hidden costs. In the Food and Drink sector, for example, Envirowise applied a value of £500 per tonne to take account of factors such as the embedded resource value when semi‐finished products are discarded. As Landfill Tax alone has increased the waste management cost by £19 per tonne, it would be reasonable to increase the average waste management cost to a rounded amount of £75 per tonne. Making this change would increase the mean estimate of waste disposal savings from the Food and Drink sector from £94.4 million to £127 million. However, since there has been no upward revision in the £500 per tonne valuation of the hidden costs, the mean valuation of savings in the sector would remain unchanged at £857.9 million. Of the £2.7 billion in potential savings from waste‐related resource efficiency savings, £881 million were from direct savings in waste management costs. It is this element alone that will have increased due to increases in waste management costs, but this should not be interpreted as thereby increasing the mean estimate of £2.7 billion.

3.3.1 Multipliers

The term widely used to identify the difference between direct waste management fees and the hidden savings is ‘multiplier’. This is unhelpful, as it implies that there is a fixed ratio between the verifiable and certain costs of waste management services and the internal savings from improved resource efficiency. An increase due to Landfill Tax increases, for example, is not related to any of these internal and hidden costs. The hidden savings are estimates and will vary over time as the financial value of production resources change. For the 2007 study, these estimates were verified by industry experts as being reasonable and no work has been undertaken since to challenge the opinions received.

3.3.2 Construction and Mining

The proposed upward revision in waste management costs from £55 per tonne to £75 per tonne would not apply to the Construction, Mining and Quarrying sectors. The majority of the waste from these sectors is subject to a lower and stable rate of Landfill Tax. Of the £881 million of savings from avoided waste management services, £270 million were identified in the Construction and Mining sectors.


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3.4 Proposed Re-valuation of Waste Savings

There is no evidence to revise upward the tonnage of commercial and industrial wastes that could be subjected to resource efficiency savings. However, there is a case for increasing the waste management costs from an average of £55 per tonne to a rounded sum of £75 per tonne – due entirely to the increase in Landfill Tax since 2006. This change has no impact on the valuation placed on the hidden savings for resource efficiency activities. There is no evidence that these estimates should be changed. The basis of the calculation shown in Table 8 below is: • Construction, Mining and Quarrying sector savings of £230 million and

£40 million are unchanged. • All other sectors have a 36% increase from £611 million to £833.2

million.

Table 8: Revised valuations for resource efficiency savings from waste



2007 study (Table 3.2) 881 2,659

Proposed 2009 re-valuation 1,103

3.4.1 Accounting for Inflation in Hidden Savings

‘Hidden savings’ is a term used to describe the production costs embedded in materials and semi‐finished products that are discarded by the manufacturing or service business. These costs will have been subject to a change in value since 2006. Some of the costs will be related to labour, others to energy inputs and others to various other material inputs. An appropriate inflation index for the majority of these hidden savings is factory gate output prices for home sales. A more sophisticated approach might be to create a blend of indices that reflects the mix of savings opportunities in the Manufacturing and Service sectors, or even to do this at a sector level. Using the factory gate price index, there is a case for increasing the hidden savings by 10.9% (Q1 2006 over Q1 2009; Table 9).


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Table 9: Factory gate prices index

All manufacturing (inc CCL)

Input prices (materials and fuel)

Factory gate prices (output prices – home)

2006 1 109.4 101.2 2006 2 110.1 102.4 2006 3 110.4 102.7 2006 4 108.2 102.3 2007 1 107.3 103.1 2007 2 110.4 104.3 2007 3 112.6 105.1 2007 4 120.7 106.7 2008 1 129.5 109.1 2008 2 143.4 113.5 2008 3 144.3 114.8 2008 4 131.6 112.4 2009 1 130.3 112.2

Three year increase 19.1% 10.9% Source: ONS 2009

Should this approach be taken it assumes that the activity level has been static since 2006. GDP has grown over the same three year period by 12.6% although it has been falling since the second quarter of 2008. Whilst there is a case for increasing the value of the hidden savings to take account of higher levels of output, GDP is an unsuitable measure. Even if more specific output measures were used this would imply that there have been no qualitative changes in output, with the associated implications for type and quantity of waste generated. We have concluded that there is a case for increasing the valuation of hidden savings and the waste management service costs. These changes increase the waste savings opportunities by £416 million from a total of £2,659 million to £3,075 million (Table 10).

Table 10: Revised valuations for resource efficiency savings from waste including inflation factor for hidden savings



2007 study (Table 3.2) 881 2,659

Proposed 2009 re-valuation 1,103 3,075


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4 Energy Savings

4.1 Introduction

In the 2007 study, a value of £3.349 million was given to the energy savings available from no‐cost/low‐cost resource efficiency improvements across UK businesses. Since the publication of the report, energy prices have been volatile (Figure 1).

Figure 1: Industrial fuel price indices, 1970 to 2008

Source: ‘Quarterly Energy Prices Report’ June 2009 DECC

The 2007 study used common energy prices for each sector, which are shown in Table 11.

Table 11: Prices for fuels used in the 2007 study

Fuel type 2006 fuel price (p/kWh)

Coal 0.626

Heavy oil 2.0987

Electricity 5.85

Gas 1.746


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For each sector the distribution of fuel use was established and an average price thereby calculated, separately accounting for the Climate Change Levy. Fuel price indices for the Industrial sector are provided in the ‘Quarterly Energy Prices Report’. By comparing the indices for 2006 with those for the first quarter of 2009, the average prices used for the 2007 study have been restated (Table 12 and Table 13).

Table 12: Price index movements per fuel since 2006 Fuel type 2006 Q1 2009 Change

Coal 98.2 139.6 +42.2%

Heavy oil 342.0 490.0 +43.3%

Electricity 153.7 223.5 +45.4%

Gas 227.2 264.7 +16.5%

Total fuel 207.6 285.9 +37.7% Source: Table 3.3.1 Fuel Price Indices (current terms) excl Climate Change Levy Page 40 ‘Quarterly

Energy Prices Report’ June 2009 DECC

Table 13: Prices increases per fuel since 2006

Fuel type Fuel price (p/kWh)

2006 Fuel price (p/kWh)

Q1 2009

Coal 0.626 0.89

Heavy oil 2.0987 3.01

Electricity 5.85 8.51

Gas 1.746 2.03

The indices used for gas and electricity have been seasonally adjusted, which has the effect of reducing the inflationary increase. The average (and unadjusted) price for electricity was 9.71p/kWh and for gas 2.883p/kWh. Because gas is widely used as a fuel source in many industrial sectors and it presents a significantly lower price increase since 2006 when compared to other fuel sources, it is necessary to recalculate the potential savings in each sector using the industry‐specific mix of fuels (Table 14). In order to simplify this task we have used a 16.5% increase for gas prices and an average 43.6% increase for electricity, heavy oil and coal. For gasoil we have used a rate of 19.1%. This is based on an actual price in 2006 of £392.24 per tonne compared to an average price of £467.30 in the first quarter of 2009.


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Table 14: Revised estimates of savings from fuel efficiency

Sector Subsector

2006 estimated savings

(excluding CCL) (£M)

% increase

Revised estimates

(£M) (excluding CCL)

Industrial

Chemicals 176 33% 234

Coke, refined petroleum products & nuclear fuel

60 38.6% 83

Basic metals / Mechanical engineering

77 38% 106

Food & drink 72 31% 94

Paper, printing & publishing

49 35.3% 66

Vehicles 27 32.5% 36

Textiles 25 31.5% 33

Electrical engineering 25 38.7% 35

Construction 27 30.8% 35

Other 103 35% 139

Commercial (Service)

Retail 130 27.7% 166

Hotels 101 25.4% 127

Warehouses 71 27.2% 90

Commercial offices 93 26.7% 118

Education 48 23% 59

Government 46 23.5% 57

Sports & leisure 24 27.6% 31

Health 16 24.2% 20

Other 17 23% 21

Transport Road freight 2,017 5.35% 2,125

Agriculture All 53 5.35% 56

TOTAL 3,257 14.6% 3,731

The price for transport fuels, diesel and unleaded motor spirit are especially significant in these estimates. Had we selected prices for January 2009 instead of May 2009, the price increase over 2006 would have been 0.79% instead of 5.35%. The relatively lower increase in gas prices since 2006 (when compared to electricity, coal and heavy fuel oil) is likely to have further increased the trend amongst industrial energy users of switching to gas. We have not recalculated the mix of fuels used by each industrial sector but it is likely that, if we were to do so, the estimated average increase since 2006 of 14.6% would be reduced.


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4.2 Climate Change Levy

The Climate Change Levy (CCL) came into effect on 1st April 2001 and applies to energy used in the non‐domestic sector. From the Budget date of 1st April 2007 the CCL rates have been increased in line with inflation. The current rates are: • 0.159p/kWh for gas • 1.242p/kg for coal • 1.018/kg for LPG • 0.456p/kWh for electricity. There are exemptions from the Levy. In the 2007 study the additional impact of the CCL was £92 million across all relevant sectors. Applying the new rates for the CCL would increase the impact of the CCL from £92 million to £95 million.

4.3 Proposed Re-valuation of Energy Savings

The significant changes since 2006 in the price of the main fuels used by businesses justify a re‐valuation of the price data, at the same time taking account of the inflationary increase in the Climate Change Levy. These changes are shown in Table 15.

Table 15: Summary energy savings estimates original and proposed re-valuation

ENERGY


excluding CCL (£M)


including CCL (£M)

2007 study estimates 3,257 3,349

Proposed 2009 (Q1) re-valuation

3,731 3,826

4.4 Energy Efficiency

There is evidence that some sectors have improved their overall measure of energy efficiency since 2006. Much of this improvement will have been achieved through investment in new processes and through efficiency gains from merger and acquisition activity. It is not possible to separate the contribution made through the type of resource efficiency activities evaluated in the 2007 study.


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One means of measuring energy efficiency is evaluating the energy taken to create one unit of output. Data were taken from the BERR (now DBIS) Energy Consumption 2008 report. Figure 2 and Figure 3 show the consumption of energy required per unit of output across several industry and service sectors up until 2007.

Figure 2: Efficiencies of key industry sectors from 2000-2007

Energy Consumption per unit output - Industry

40.00

50.00

60.00

70.00

80.00

90.00

100.00

110.00

2000 2001 2002 2003 2004 2005 2006 2007

Year

Inde

x (2

000

= 10

0) Iron & SteelChemicalsFood, drink & tobaccoTextilesAll industry

Figure 3: Efficiencies of the service sectors from 2000-2007

Energy consumption per unit output - Services

0.00

20.00

40.00

60.00

80.00

100.00

120.00

2000 2001 2002 2003 2004 2005 2006 2007

Year

Inde

x (2

000=

100)

CommercialPublic administrationAll services


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All the main sectors within both Service and Industry sectors have shown an improvement in energy efficiency per unit output since 2000. The Textiles sector has seen a slight improvement in efficiency overall, though during the year following 2006 showed a slight decrease. Percentage changes are given in Table 16.

Table 16: Changes in energy efficiency since 2000 and 2006

Sector

Improvement in energy efficiency (consumption per unit of output)

…since 2000 (%) …since 2006 (%)

Iron and steel 8.76 5.86 Chemicals 34.59 3.75 Food, drink and tobacco 8.13 0.74 Textiles n/a -0.76

Average for Industry 6.38 3.57 Commercial 26.92 4.1 Public administration 27.64 6.75

Average for Services 28.17 5.36

Textiles is the only manufacturing sector examined to show a decline in energy efficiency in recent years, which may reflect the extensive changes in this sector as manufacturing of lower value textiles is outsourced to other countries. Overall the annual rates of energy efficiency improvements average slightly less than 1% for Industry and approximately 4% for the Service sector.

4.5 Transport Sector

Evaluation of the efficiency improvements in the transport industry are based upon simple efficiency comparisons; number of miles to the gallon (mpg) as an average per annum. Figure 4 shows consumption over the last 15 years, though data are not yet available for 2008. The diesel price is also shown. The data show that mpg has worsened for both types of road freight transport vehicle. The average number of miles travelled is 8.7 per gallon in 2007, a drop of 0.2 miles since 2006. This by itself is not a satisfactory measure of transport fuel efficiency, since heavily loaded vehicles will have a lower mpg and empty vehicles, conversely, an improved mpg. Figure 5 takes account of the tonnage of freight hauled by these vehicles.


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Figure 4: Consumption of fuel by HGV freight since 1993

6

6.5

7

7.5

8

8.5

9

9.5

10

10.5

11

1993

1995

1997

1999

2001

2003

2005

2007

Year

Mile

s pe

r gal

lon

40.00

50.00

60.00

70.00

80.00

90.00

100.00

110.00

120.00

130.00

Pric

e (p

ence

per

litr

e)

Rigid Articulate All Diesel price

Figure 5: Vehicle and tonne kilometres since 1980

Source: Transport Statistics Bulletin Road Freight Statistics 2007


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Figure 5 shows that whilst the average distance travelled by each vehicle has remained stable for the last six years, the tonne‐kilometres (distance travelled multiplied by the tonnage hauled) has increased for approximately the last 15 years, with the last few years showing a steeper increase. This suggests that load efficiency has improved since the 2007 study, but it is not possible to identify the extent to which this change has been caused by the sort of resource efficiency improvements identified in the 2007 study. To investigate whether some evidence might be available from the on‐going resource efficiency work in the transport sector, we investigated the case studies available since 2006.

4.6 Case Studies

Case studies were sourced from the Freight Best Practice website funded by the Department for Transport. We were concerned to identify those that provided a reasonable sample of the industry as a whole. One possible risk to consider if using this method, however, is that companies continuing to implement resource efficiency improvements may not be representative of the industry. For example, they may be delaying response to recommendations (therefore over‐representing opportunity), or else be ‘efficiency minded’ and more likely to be adhering to good practices beforehand (under‐representing opportunity). Comparisons cannot realistically be expected to be ‘like for like’ with the previous report, i.e. different companies are being evaluated. These risks are perceived to be minimised by ensuring a sufficient number of case studies are investigated. Few case studies were found relating to improvements that have occurred in the previous years since 2006, and related to no‐cost/low‐cost practices. Of those that were found, the key savings were as follows: • Reduction of idling engine time (average of 2.8% saving of mpg) • Owner‐drivers and small fleet operators using a range of low cost

practice improvements saved an average 12.5% of fuel consumption • Tesco implemented a number of efficiency improvement methods, and

realised a 10.2% saving of CO2 emissions across the fleet. The number of case studies is too small to be statistically significant. Even the Tesco case study does not specify what proportion of the total saving was related to no‐cost/low‐cost improvements. The small fleet operatorsʹ example is more reliable as it involves three separate fleet examples, using a range of low‐cost resource efficiency improvements. However, it is not applicable to large fleets (six vehicles or more) and therefore not relevant to a significant proportion of the industry.


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5 Water Savings

5.1 Introduction

Water resource efficiency savings represent 7% (£441 million) of the total savings opportunities identified in the 2007 report. Since 2006 the issue of water efficiency has been given greater prominence through the publication of the Government’s water strategy for England7 as well as the Environment Agency’s water resource strategy for England and Wales8. The evidence base used for these documents was sufficient to set a long term target of reducing per capita household water consumption to 130 litres per day from a current level of 150 litres. However, the data available for commercial and industrial consumption are made less robust due to the more than 4,000 licensed abstraction points for use in industry.

5.2 Evidence for Change

Waterwise has continued to offer water efficiency services since 2006 and UKWIR9 collects water efficiency case study evidence as part of a database of such projects. These could be used to update the potential efficiency savings that are estimated to be available, although in almost all sectors the potential percentage improvements were much larger than those used for energy or waste. The food industry, for example, has set a voluntary target of reducing its own consumption of water by 20% by 2020, something that the original study acknowledged, and this target has not changed. The sector is reported to take 10% of all industrial abstractions and another 105 of total industrial water use from the public supply10. The Environment Agency continues to carry out studies designed to improve the advice offered to businesses and to improve the data available for the scenario planning that informed its 2009 strategy document.

7 ‘Future Water’ February 2008 8 ‘Water for People and the Environment’ 9 UKWIR is the water industry research organisation, with a membership of 24 water and sewerage undertakers. 10 Page 29 Chapter 2 ‘Future Water’ February 2008


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Whilst it seems likely that the renewed focus on water efficiency will have led to improvements since 2006, to identify these improvements across multiple business sectors would require an exercise of wider consultation. Although we have no evidence for amending the water consumption data and the potential savings opportunities, there is a case for inflating the estimates by the average price increase for water since 2006. According to Ofwat, the average price increase for domestic water supply was 7% for 2007/08, and 5.8% for 2008/09. In practice, many industrial users of water will have negotiated lower price increases than this and in some cases will have continued to access water resources from in‐house abstraction points at no extra cost. Given these uncertainties, the sources of the original estimates and the relatively modest scale of the potential savings opportunities, there is no case for a re‐valuation.


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6 Conclusions

The objective of this study is to investigate the evidence for revaluing the £6.4 billion in financial savings estimated in the 2007 study for Defra ‘Quantification of the Business Benefits of Resource Efficiency’. The three components of a valuation are: 1. Changes in the baseline quantity of the target resources 2. Changes in the uptake of the measured resource efficiency savings

opportunities 3. Changes in the prices of resources including associated waste

management services and relevant environmental taxes, notably the Landfill Tax.

This report identifies some ‐ but insufficient ‐ evidence of change for the first of these three components. It identifies only some isolated case study evidence for the second component, but more extensive and sufficient evidence of price changes for the third component. The original study relied upon an analysis of case study data. Preparing such case studies presents challenges in terms of using common metrics and common valuation methods. The case studies used for the 2007 study displayed no trend over time to support the proposition that the overall level of saving opportunity is declining. It might be expected that case studies would show that the level of savings available declines each year as companies deal with the easier savings opportunities internally. That no such trend is reported does not necessarily indicate that the opportunities are in fact becoming more or less difficult to find. The sample size and its lack of homogeneity, and the considerable challenges involved in providing consistent data, are likely explanations. If the case study data cannot offer a clear trend over time in which efficiency savings are becoming more or less difficult to find, this does raise questions about the purpose of regularly updating the valuation. Changes in the valuation cannot, for example, represent a meaningful measure of progress by the resource efficiency delivery bodies. Perhaps this raises questions about the way in which resource efficiency services are targeted, offered, delivered and measured. Ideally, a greater focus on a smaller number of business sectors, with tighter conditions placed on businesses that receive the services combined with at least a core


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of common metrics, may provide clearer evidence that ‐ by some measures at least ‐ such resource efficiency opportunities decline over time and thereby a high level measure of progress provided. Certainly, by some measures there is a positive and continuing trend toward improved resource efficiency, notably for energy use; although the extent to which this can be attributed to the uptake of no‐cost/low‐cost resource efficiency activities is unknown. As far as the £6.4 billion valuation is concerned, we conclude that there is insufficient evidence with which to justify a partial re‐valuation upwards in 2009 to £7.3 billion (Table 17). If a revaluation is considered appropriate then it may be wise to test whether the quantities underlying the £6.4 billion estimate have changed since 2006.

Table 17: Estimated savings opportunities, base year and proposed re-valuation

Resource


(£M) 2006


(£M) 2009

Waste 2,659 3,075

Energy 3,349 3,826

Water 441 441

Total £6,449M £7,342M

Documents

No-Cost/Low-Cost Resource Efficiency Savings Opportunities ...randd.defra.gov.uk/Document.aspx?Document=EV02036_8447...Resource Efficiency’ estimated the total annual value of no‐cost