Focusing on Life Cycle Cost (LCC), Life Cycle Assessment (LCA) and Cost Benefit Analysis (CBA) Green Public Procurement (GPP) - Lead the change National Conference George Jadoun, 22 April 2010 Madrid, Spain
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Outline
LCC (Life Cycle Cost) and WLC (Whole Life Cost)
LCA (Life Cycle Assessment) and CBA (Cost Benefit Analysis)
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What is Life Cycle Costing? Definitions in the BS ISO 15685:5 is:
Life cycle costing … is a methodology for the systematic economic evaluation of the life cycle costs over the period of analysis, as defined in the agreed scope. Note: life cycle costing can address a period of analysis which covers the entire life cycle, or selected stage (s) or periods of interest therein’.
Whole life costing … is a methodology for the systematic economic consideration of all the whole life costs and benefits over the period of analysis, as defined in the agreed scope …
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LCC vs. WLC ISO addresses the confusion over terminology – regarding the difference between whole life cost (WLC) and life cycle cost (LCC)
Note – Occupancy costs included in non construction costs in BS ISO 15686-5
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Why should we use LCC?
The most common misconception about GPP is that green products cost more
However, upon closer inspection, this may not necessarily hold true
The higher initial price of the greener product is more than compensated by the much lower usage and disposal costs
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Using LCC
Use of LCC is not mandatory under the EC procurement Directives, however if contracting authorities wish to ascertain which product, among alternatives, is the most cost effective then they need to apply LCC approaches in their procurement award decisions.
This means comparing not just the initial purchase price of a product, but also the future costs as well: 9 Usage costs (energy/water consumption, consumables such as ink or paper) 9 Maintenance costs 9 Disposal costs/resale value
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Examples of LCC
When the environmental authorities in Hamburg, Germany, substituted two old inefficient lamps with one energyefficient lamp in 300 public buildings, they reduced the annual electricity consumption by approx. 4.5 million kWh (an equivalent of approx. 2,700 t of CO2 emissions).
Assuming a price of 5 cents per kWh, this equates to an annual saving of €225,000 on Hamburg's electricity bill.
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LCC in Construction
Running costs may constitute up to 85% of total costs
On same scale, design costs are likely to be 0.3% to 0.5% of lifetime costs
It is through the design process that the largest impact can be made on the 85% figure
So LCC should be a standard procedure for construction work
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Clean Vehicles Directive 2009/33/EC Aim Market introduction of clean and energy efficient vehicles to improve the environmental performance of transport
Scope Road transport vehicles purchased by contracting authorities and entities, and operators under public service obligation for passenger transport
Approach Inclusion of life-time impacts in vehicle purchase on energy consumption, CO2, pollutant emissions
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Monetisation of Emissions
Cost for emissions in road transport CO2
NO2
NMHC
Particulate matter
0,03-0,04 €/kg
0,0044 €/g
0,001 €/g
0,087 €/g
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How can my organisation use LCC?
Identify types of procurement for which LCC is appropriate (e.g. buildings, energy and water consuming equipment)
Create a nucleus of specialist staff who will be responsible for procurement of equipment/construction where LCC award methodology is appropriate
Incorporate a requirement for LCC into your procurement policy – so that it becomes a systematic part of the procurement process
Provide training in the use and advantage of Life Cycle Costing as a tender evaluation method
Gain experience in using LCC, and adapt it for your needs
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Benefits of using LCC
There are many benefits for organisations in using Life Cycle Costing on a systematic basis: 9 Greater transparency of future costs 9 More effective evaluation of competing options (best value for money) 9 Better forecasting of future expenditures
In summary, life cycle costing supports your responsibility to the community to use public funds wisely and sustainably
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Introducing Life-Cycle Assessment
LCA provides ‘a systematic set of procedures for compiling and examining the inputs and outputs of materials and energy and the associated environmental impacts directly attributable to the functioning of a product or service system throughout its life cycle.
(adapted from BS EN ISO 14040, 3.2)
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Life-Cycle Assessment methodology
Underpins the development of eco-label criteria
Scientific basis - can be complex
Often carried out by specialised firms or by consultants on behalf of companies
LCA is the basis for Product and Service prioritisation which are thereafter incorporated in the NAP taking into consideration, the scope for environmental improvement, the market readiness, the political context, affordability, etc.
ISO Standards 9 BS EN ISO 14040:2006 Environmental management – Life cycle assessment – Principles and framework 9 BS EN ISO 14044:2006 Environmental management – Life cycle assessment – Requirements and guidelines
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Life-Cycle Assessment Example:
Life cycle assessment of a detergent
Includes impacts of: 9 9 9 9
Raw materials Manufacturing Use End-of-life
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What is CBA?
Cost–Benefit Analysis attempts to monetise the discounted net present value (NPV) of all relevant costs and benefits and to examine the cost effectiveness of various alternatives in order to select the alternative where benefits best outweigh costs.
In sustainable procurement, CBA assesses the costs and benefits of a proposed project, policy or action whose objective is to reduce the environmental impact; for example the purchase of a new cleaner technology.
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What is CBA?
Benefits in such cases can be regarded as avoided environmental damages and can include for example, reduced emissions, improved water quality, species preservation, etc.
Costs are reflected in the price to be paid in order to acquire the new environmentally benign technology.
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Please visit:
http://ec.europa.eu/environment/gpp http://www.itcilo.org/gpp
Thank you for your attention! George Jadoun Sustainable Development & Governance ITCILO
[email protected]
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