May’s column discussed energy productivity indices. Generally these will be energy use per unit of output and energy costs per unit of output. Increasingly, good corporate energy management programs track greenhouse gas (GHG) emissions indexed in similar ways. Once productivity indices are agreed, it’s almost inevitable that the question arises as to how well our performance compares with others in similar businesses.
Before diving into the mechanics of benchmarking, it’s always important to explore the motivation behind requests for external comparisons. Often, it’s a genuine request for information to guide effective decisions, but sometimes it might be a thinly disguised request for data that can be positioned to undermine the effectiveness of the energy management program. It’s important to probe the motivation and tailor the response accordingly. Once indexes are defined, the tracking discipline becomes critical.
Five levels of benchmarking can typically be used, four of which should generally be a feature of good energy management. The first is at the total corporate level against the internal benchmark of a baseline year. In the case of a large company I’m currently advising, the baseline year for energy costs, usage and greenhouse gas is 2005, and the breakthrough productivity target is 30% by 2010. As soon as reliable energy data is available, the headline indices should be made a visible and repetitive feature of most executive communication.
The second level is similar to the first, where individual divisions benchmark their energy and greenhouse gas indices against both the baseline year and productivity goals. Like safety, management meetings should include a quick overview of energy progress along with a summary of any corrective actions of targets that are at risk.
The third level benchmarks overall corporate performance in terms of energy productivity improvements and GHG reductions on a percentage basis relative to other companies, typically to selected peer companies. Given most corporations have radically different product mixes, input energy costs and market pressures, absolute comparisons at a corporate level are all but meaningless, so most companies opt to use peer company percentage benchmarking.
Data can be gathered either by mutual benchmarking agreements, or by using published information. Both the California Climate Action Registry and the U.S. DOE 1605B databases publicly report GHG performance. Indexing this to the financial performance is an easy task using public records. Companies are increasingly publishing energy and greenhouse data as part of their annual reports, further increasing availability of benchmarks.
The fourth level is benchmarking products and sites. The accepted norm for a good corporate energy management program is for the index to be around energy use and cost per unit of saleable production.
The ideal is to track this data by individual manufacturing site, such that the energy productivity of different sites can be compared when multiple sites make like products. In all cases, the other benchmark at this level will be the product indexes from the baseline year.
The fifth level responds to the question, “For like products, how does my energy and GHG productivity compare with my competitors and with the industry averages?” This is the gold-standard of energy productivity benchmarking if it can be answered accurately. However, the data available is limited. It wasn’t seen as strategic, so there’s a dearth of history. And today, most companies view energy and greenhouse tracking at an operational productivity level as competitively sensitive. Further, other than in high-volume commodity industries, it’s almost impossible to get a sufficiently generic definition of a product that is both comparable and statistically significant.
Despite difficulties, the value of product-level energy benchmarking across an entire industry is so high that significant efforts are underway to fill this gap. In the United States, foremost among these are the Energy Performance Indicators (EPI) as part of a comprehensive National Rating Scheme managed by Energy Star. These are developed for selected industrial and commercial categories. To date, EPI have been developed for a wide range of commercial and institutional properties, covering at least half the property types in the country. For industrial products, the range is more limited, covering only auto assembly, cement, corn refining and petroleum. Shortly, EPI will be available for food processing, flat glass, fiberglass and pharmaceuticals, and maybe pulp and paper and some petrochemicals.
If your products fall into these categories, external benchmarking might well have a value, once good energy managements habits are in place. If not, I recommend you stay away from the challenge of external product benchmarks and focus on measuring progress against internal benchmarks and aggressive goals.
Peter Garforth is principal of Garforth International LLC, Toledo, Ohio. He can be reached at [email protected].