An input-output approach for the efficient design of sustainable goods and services

Abstract

Purpose We propose a prescriptive framework to support environmentally conscious decision making in the design of goods and services. The framework bridges recent applications of input-output analysis to conduct environmental life cycle assessment (LCA), with seminal work in production economics. In the latter, product design, production planning, and scheduling problems are frequently formulated as input-output models with substitution, and subsequently analyzed and solved as linear programs. The use of linear programming provides an appealing theory and computational framework to support decision making, as well as to conduct sensitivity analysis

Methods In this paper, we explore the benefits of integrating LCA within a linear programming (LP) framework and present a case study where we consider a hypothetical advertiser located in the Chicago Metropolitan Area, who wishes to allocate a predetermined budget to place ads in either the print or online versions of a high-circulation, local newspaper. We formulate the problem of finding an advertising strategy that minimizes global warming potential (GWP), subject to demand and budget constraints. We then solve the problem and evaluate the optimal strategy in terms of discharges of component greenhouse gases, and in terms of requirements imposed on various energy sources. We also analyze the sensitivity of the optimal advertising strategy (and associated global warming potential) to perturbations in the model parameters and constraints.

Results and discussion By embedding LCA within an LP formulation, we are able to examine the relationships between economic and environmental factors inherent within decisions to use specific products or services. Specifically, the advertiser finds that each strategy contains tradeoffs among and between environmental and monetary costs. A disaggregate comparison of greenhouse gas release and energy consumption among strategies highlights the variation between these factors and the potential dangers of aggregation. Sensitivity analysis gives us marginal costs (per dollar and per person) of GWP in the optimal solution. These and other managerial insights presented highlight the complex tradeoffs necessary for environmentally conscious, sustainable decision making.

Appendix A: Parameters for the case study

In this section, we discuss the assumptions and approach used to generate the parameters in the linear program presented in Section 4. Much of the cost and other technical information was obtained from the Chicago Tribune Media Group (2008).

1.1 A.1 Advertising costs, κ _np and κ _ol

In terms of advertising products, we consider a newspaper ad consisting of a 1/8-page ad placed on the front page vs. an online ad consisting of a static, highlighted, homepage based “Cube Ad” appearing on the first displayed page to the right of the text.

A 1/8-page ad measures 5×2.875 inches, which translates to 14.375 column inches. At a posted rate of $1,135 per column inch (plus $7,100 for a front page space) on Sunday and a rate of $455 per column inch (plus $4,700 for a front page space) on a weekday or Saturday, this sums to a weekly running cost $90,859.38. The Chicago Tribune reports a distribution 4,148,681 papers on a weekly basis, which translates into a per-paper cost of 2×κ _np = $0.0219. A conservative readership assumption for a major newspaper is two readers per paper, and so we assume that the total readership is double the circulation.

A static, highlighted, “Cube Ad” appearing on the Tribune’s homepage costs $50,000 per week. The Tribune reports 16,943,601 monthly visitors to their website, which translates into 3,899,349 visitors per week, and a cost per visitor of κ _ol = $0.0128.

1.2 A.2 Bill of materials, c _ij

In the example, newspapers are modeled as having direct inputs from three economic sectors: newsprint, ink and printing, and transportation delivery. Online ads, on the other hand, are assumed to consist of inputs from two sectors: electronics manufacturing, and energy production. The assumptions used to estimate the inputs that appear in Fig. 3 are presented below:

• – Newsprint

  • Newsprint is a commodity that varies in cost each year because of price variations. Toffel and Horvath (2004) estimated the cost for newsprint at $540 per metric ton. Newsprint varied from $580 to US $660 per metric ton between 2006–2008 (Newfoundland Labrador Department of Finance, Economic Research and Analysis Division 2008). Newsprint costs are expected to increase 15% in 2009, as commodity prices continue to rise. We used a price of $580 per ton to align the costs for newsprint with those estimated in previous research, and to minimize the bias that inflated prices would have on the analysis.

  • The weight of the Chicago Tribune was measured to be 4.05 g per numbered page. From a small sample, we estimate the weekly average number of pages at 108 (not including separate circular advertisement sections). Thus, the estimated weight per paper is 4.05·108 = 437.4 g per paper. Thus, the estimated weight per paper is 437 g per paper, and a single newspaper requires $0.2537 in inputs from the newsprint sector.

• – Ink and printing

  • Data are not available on ink usage in printing the Chicago Tribune. From Toffel and Horvath (2004), we estimate inputs of $0.1249 per kilogram (converted to 2007 dollars) for ink and printing costs. The corresponding cost for the Chicago Tribune is calculated to be $0.1249·437.4 = $.0546 per paper.

• – Delivery

  • Delivery costs were calculated using the cost in diesel fuel to deliver the newspapers, plus a yearly maintenance allowance for each vehicle. The average diesel fuel price for 2007 was reported from the US Department of Energy as $2.94 per gallon. An estimate of 5 mpg with a carrying capacity of 1,000 newspapers was used. The Chicago Tribune is printed at 777 West Chicago Avenue, Chicago IL. The average population-weighted distance for Cook County and the six surrounding counties, the area comprising the majority of the Chicago Tribune subscribers, is 15.99 statute miles. For a round trip, the cost per truck in diesel fuel is calculated to be $9.40, and the cost per paper is $0.0188. A maintenance allowance is given as $1,000 per year per truck, i.e., $0.01923 per paper. This totals $0.038 per paper in delivery costs.

The components of Online Ads used in this paper are from two sectors: electronic and cell phone manufacturing, and energy generation.

• – Electronic and cell phone manufacturing

  • We considered a popular, small size, multi-function, internet ready cellular phone. The 2007 production cost of this phone is estimated by iSuppli Corporation to be $245. Assuming a cell phone life of 3 years, the cost per week is $1.57. Users were estimated to spend 5% of their time on news sites, resulting in a per user cost of $0.0785.⁸

• – Energy generation

  • The energy use was estimated to be the energy required to regularly charge the cellular phone. The phone in question was estimated to consume 4–6 W while recharging daily, plus 0.5 W of use when left in the charger. At an average cost of 10.4 cents per kWh this translates to $0.47 in electricity usage per week, and a cost of $0.024 (5% of total cost) allocated to the Online ad.

1.3 A.3 Economic input-output tables and environmental impact coefficients

The economic IO Tables were obtained from US Department of Commerce Bureau of Economic Analysis Benchmark Input-Output Tables for 2002. The emissions and energy use coefficients are derived from the US 1997 Industry Benchmark Economic Input-Output Life Cycle Assessment (EIO-LCA) models, http://www.eiolca.net (Carnegie Mellon University Green Design Institute 2008).

Global Warming Potential (GWP) is defined as “the ratio of the time-integrated radiative forcing from the instantaneous release of 1 kg of a trace substance relative to that of 1 kg of a reference gas” (Houghton et al. 2001). In practice, GWP values represent the amount to which gases add to the greenhouse effect in the atmosphere with reference to the impact of CO₂. Thus, GWP can be used as a measure of the total impact of greenhouse gases associated with a product or process.