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Justifying the feel-good labels
Imagine a future version of Amazon.com where the price for
each product is reported in two different ways: as dollars (P1), and
also as carbon-adjusted dollars (P2). Now consider a pair of competing
products, A and B, under two different scenarios. In one scenario, A's
P2 is lower than B's, but A's P1 is higher than B's. Some people will
be willing to pay the higher P1 (i.e., more dollars) to reward A's
lower P2 (i.e., less environmental impact), but most won't.
In the other scenario, however, A's P2 is still lower than B's,
but its P1 is about the same. In other words, there's no penalty to
the buyer for rewarding A's lower environmental impact. If the P2 data
are available, it's a rational choice.
[Full story at InfoWorld.com]
Several readers wrote to dispute the assumption that global warming is
a real threat, and that one useful response would be to restructure
manufacturing operations and supply chains in ways that reduce the
amount of carbon we're pumping into the atmosphere. Fair enough. In
fact, I should have broadened the argument because it does not depend
on that assumption.
We can all agree, for example, on the need to reduce the economic and
geopolitical instabilities resulting from our dependence on oil. From
that perspective, the alternative pricing mechanism I'm proposing
would be a way to reward suppliers who organize their supply chains in
ways that reduce that dependency. Supermarkets, for example, use
feel-good labels like "locally-grown," but they don't quantify what
that means in terms of transportation miles saved. Reporting that
number would help me evaluate the environmental benefit associated
with paying more for local strawberries. More subtly, in the case of
similarly-priced items -- say, strawberries from California versus
Rhode Island -- it would enable me to prefer non-local sources that
are relatively closer to home.
But is such measurement even possible? Brian Bartlett writes (email
quoted with permission) thinks not:
Yes, we do call pollution, among many other things, externalities, but
that does not mean we have enough data to predict the exact amount of
an externality in, for instance, a supply chain let alone quantify
them by dollar value. I came to this conclusion while examining the
EuP regulation proposed for the European Union and what is required is
statistically impossible to reliably measure or predict. Simply
consider the case where one manufacturer in the supply chain for an
item relies on two or more other suppliers. One has to know, at all
times, exactly their contributions to the final product including
transportation externalities for each to quantify the overall
externality cost. I have yet to see industry ever accomplish that
reliably. Not even the US military can accomplish it and they have
tried. Another externality, transportation of product from warehouse
to customer, be it business to business or business to customer, will
vary radically by location, time of year, etc. Again, you can at best
predict after the fact (hindsight is ever 20/20).
This is the same type of problem in information theory as to why a
centralized, command economy will not work. There is always lag in
measurements and statistical past does not always reliably predict
statistical future, although it may help, somewhat. Models,
especially predictive models, are a field I have been working in for
over thirty years and both your presentation here, and EuP, are
unworkable in the real world.
The European Union's forthcoming EuP (energy-using product) mandate
was, by the way, characterized as a "coming regulatory storm" in a
recent pair
of columns
by my colleague Ephraim Schwartz. Read
it and weep, says Ephraim. So I did read, and did weep. No, that's
not what I have in mind at all. So far as I can see, sticking a flowery eco-label on a
product is about like sticking a "locally-grown" label on it. I may
feel vaguely virtuous, but I have no additional data to inform my
purchasing decision.
Some systems already report this kind of data. You can, for example,
easily discover the route traveled by any FedEx package. That was an
amazing feat when FedEx first accomplished it, and it's hardly routine
even today. But as SOA goes mainstream it's something that gets easier
for more companies to do.
The key point here is that nobody requires FedEx to report that
data. It does so in order to gain competitive advantage. In a world
where people are more conscious of environmental factors, and more
likely to include them in purchasing decisions, reporting the numbers
behind the feel-good label becomes a competitive strategy.
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