Energy, Carbon, and the Secondary Market for Consumer Goods

ENERGY, CARBON, AND THE SECONDARY MARKET FOR CONSUMER GOODSDr. Ron Lembke

Hot, Flat, and Crowded

Hot: Climate Change Flat: Technology and

Bandwidth Crowded: More people,

who want to live like us

THE DEMAND FOR ENERGY

International Energy Outlook, 2011, US Energy Information Admistration, eia.gov

THE SUPPLY OF ENERGY

Hubbert’s Peak

• M. King Hubbert, “Nuclear Energy and the Fossil Fuels” (Drilling and Production Practices, American Petroleum Institute, Washington, DC, 1956),

Causality or Correlation?

Where does our oil come from?

US Oil Imports, US EIA

Canada; 24.2%

Mexico; 12.2%

Saudi Arabia; 10.5%

Venezuela; 9.5%

Nigeria; 9.8%

Algeria; 4.9%

Russia; 6.0%

Colombia; 3.6%

Iraq; 4.0%

Angola; 3.8%

Virgin Is-lands; 2.5%

Brazil; 2.6% Ecuador; 1.9% UK; 2.5% Kuwait; 2.0%

When is the Peak? 2004 data

Amount of Recoverable Oil, 2004

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Proven Oil Reserves, CIA Factbook

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50,000,000,000

100,000,000,000

150,000,000,000

200,000,000,000

250,000,000,000

300,000,000,000

The Price of energy

Price of LiquidsLiquid Price ounces $/gallon $/cupWine $20 25.4 100.79$ 6.3 Coffee $1.90 12 20.27$ 1.3 Coors Light $0.75 12 8.00$ 0.5 Big Gulp $1.75 32 7.00$ 0.4 milk $3.50 128 3.50$ 0.2 Gasoline $3.40 128 3.40$ 0.2 Light Sweet Crude $100 5,376 2.38$ 0.1

EIA Predicted Price of Crude Oil, 2011

NV Electricity Prices

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

2026

2028

2030

0

5

10

15

20

25

30

1989-2009 pricesLR on 10yrs DataLR on 20yrs Data

Cent

s / k

wh

R2 = 0.907R2 = 0.938

Elect. Price Data: EIA, 20y Rsq=0.91, 10y Rsq=0.94

Carbon Footprints

Carbon Footprint Visibility Wal-Mart

Sustainability initiative Carbon Trust

Labeled £2 billion last year Patagonia

Footprint chronicles

Direct vs. indirect GHG emissions? Direct: sources that are owned or controlled Indirect: result of activities, but at sources owned or

controlled by another entity.Scope:

1. Direct GHG emissions2. GHG from purchased electricity, heat, or steam3. Extraction and production of purchased materials

and fuels, transport-related activities in vehicles not owned or controlled by the reporting entity, electricity-related activities (e.g. T&D losses) not covered in Scope 2, outsourced activities, waste disposal, etc.

GHG Footprint of Retailer

Corporate PerspectiveSupplier Retailer

Lifecycle AnalysisSupplier Retailer Consume

r

EndOf

Life

Apple Carbon Footprint

Carbon Disclosure Project

Wal-Mart Sustainability Index: more transparent supply chain,

drive product innovation, info to customers “And increasingly [customers] want information

about the entire lifecycle of a product so that they can feel good about buying it.” Mike Duke

1. Supplier Sustainability Assessment Energy & climate, material efficiency, natural resources,

people & community 2. Sustainability Index Consortium

Lifecycle Analysis Database, develop an open index ASU, U of Ark, database of info on products’ lifecycles

3. Simple, convenient, easy to understand presentation of the info to customers: TBD

Wal-Mart “These are not complicated questions,

but we have never systematically asked for this kind of information before ” Mike Duke

GHG: Do you measure? Report to the Carbon Disclosure Project (CDP)?

Annual GHG? Public Targets? If so, what?Solid Waste: from the facilities for WM? Public Targets? If

so, what?Water: total use from facilities for WM? Public Targets? If

so, what?Public sustainability purchasing guidelines for direct

suppliers environmental compliance, employment practices and product/ingredient safety?

Have you obtained 3rd party certifications for products to WM?

Do you know location of 100 % of facilities that produce your product(s)?

Do you evaluate quality capacity for, production before signing a supplier?

Do you have a process for managing social compliance at the mfg. level?

Do you work with suppliers to resolve issues on social compliance evaluations and document specific corrections and improvements?

Do you invest in community development activities in the markets you source from and/or operate within?

Carbon Trust Measuring and Reducing GHG

CF per Unit

+ +=

Embodied CarbonSupplier Retailer

Embodied Carbon Consideration

Total amount of GHG expended thus far in the life cycle. Treat it like gold 6,000 kg of CO2 = 1 TL of product, 10,000

units CF = 6,000 kg/ 10,000 units = 600 g/unit

Suppose you throw away half the product What is your footprint? 6,000 kg / 5,000 units = 1,200 g/unit

RL impact on CF

100 units

6 kg GHG

Reverse Logistics reduces CF by 5%.

99 units6 kg GHG

=63.83 g / unit94 units

6 kg GHG

=60.61 g / unit

=60.00 g / unit

Theoretical (Naïve - no returns)

6% returns, all landfilled

6% returns, 5 units re-sold

6.4% higher

Where does all of the stuff go that they can’t sell anymore?

Secondary Markets for Consumer Goods

Secondary Market Retailer’s

Disposition Options Sell as New Open Box Outlet Return to Vendor Cannibalize Parts Salvage dealers Recycle/Landfill

Customer Returns Unsold product Marketing Returns

Secondary market Companies recover, refurbish,

remanufacture, and recycle product for additional use elsewhere.

System “drains” excess inventory or assets can be recovered and resold.

Several of the largest US export commodities are through the secondary market.

Environmental Benefit - reduces waste stable income for a growing sector of the US

economy. positively impacts environmental initiatives,

social benefits to constituents, and produces healthy margins.

Measuring Economic Activity

GDP Calculation avoids double-countingGDP = C + I + (X – M) + G

Other measurements different approach: e.g. trucking, online, marketplaces, etc.

Secondary Market Includes Elements not Found in GDP

We want to understand the total dollars flowing through the secondary market

Returns to Secondary Market Flow

Methodology Delphi Panel Methodology

Lack of data, inability to measure directly Panel

4 mass merchandisers (RL and returns) 4 3PLs specializing in RL 5 RL managers at CE firms 2 contract manufacturers 3 industry association executive directors

Auctions eBay, amazon, nobetterdeal, alibris eBay goods sold 2008 $59.7b

Not including autos Market share estimated at 60% Total market $99.4b

Pawn Shops 3 Largest Publicly Traded:

EZ Pawn Cash America International First Cash Financial Services 10% of total market

Combined CoGS * 10: $5,655 m

Dollar Stores Dollar Tree (40% of US stores) Dollar General Family Dollar 80% of goods estimated to be from asset

recovery process $17,669 m

underestimate

Charities Flea Markets Salvation Army Goodwill

Industries $2.7b combined

revenues Clear

underestimate

$30 billion estimate, 2006

10-15% increase since then

$33 billion

Value Retailers Often returned to retail, or bought on

secondary market 1-2 seasons behind current retail Big Lots, TJ Maxx, Marshall’s, Ross

Combined revenues $30,013 m clear underestimate

Factory Outlets Factory Outlet Stores:

Goal often 70% of retail price 80% of goods non-secondary market

Factory Outlet Sales 58,579,379 SF 95% typical occupancy rate $301 revenue/SF $13,400 m

Salvage Dealers-2007 Econ CensusAvg Cust Returns

%

% to Secondar

y Mkt

$m of Cust Returns to Secondary

MktMarketing Returns

$m Mktg Returns to Secondary

MktComputers & Consumer Electronics

87,664 6% 75%

3,945 7%

6,136

Clothing Stores

157,715 10% 75%

11,829 7%

11,040 Department Stores

210,142 6% 75%

9,456 7%

14,710

General Merchandise

367,865 6% 75%

16,554 7%

25,751

Electronic Shipping & Mail Order

215,963 8% 75%

12,958 7%

15,117

Total

1,039,349

54,742

72,754

Salvage Dealer Market Flow

Size of Secondary MarketSector Size

Auctions 99,416 Outlets 14,105 Dollar Stores 17,669 Flea Markets 33,000 Pawn Shops 565 Charity 2,691 Value Retailers 30,031 Retail Salvage Goods 127,496 Total Size of Secondary Market 324,973 2008 US GDP 14,440,000 Secondary Market as % US GDP: 2.25%