Working principle Eco-costs value ratio

1 working principle

1.1 model
1.2 eco-costs
1.3 of products

working principle
the model

evr = eco-costs/value. basic idea of evr model link value chain ecological product chain. in value chain, added value (in terms of money) , added costs determined each step of product cradle grave . similarly, ecological impact of each step in product chain expressed in terms of money, so-called eco-costs . see figure 1. note there exists porter chain right left in figure 1, starting waste , adding value recycling. in way porter chain becomes circular.

eco-costs

eco-costs express amount of environmental burden of product on basis of prevention of burden. marginal prevention costs (money) should made reduce environmental pollution , materials depletion in our world level in line carrying capacity of our earth.

as such, eco-costs virtual costs, since not yet integrated in real life costs of current production chains (life cycle costs). eco-costs should regarded hidden obligations.

for example: each 1000 kg co2 emission, 1 should invest €135,- in offshore windmill parks (or other co2 reduction systems @ price or less). when done consequently, total co2 emissions in world reduced 65% compared emissions in 2008. result global warming stabilise. in short: eco-costs of 1000kg co2 € 135,- . similar calculations can made on environmental burden of acidification, eutrification, summer smog, fine dust, eco-toxicity, , use of metals, fossil fuels , land (nature).

eco-costs used in life cycle assessment, lca, assess environmental performance of different materials, processes , end of life methods.

of products

figure 2: decomposition of virtual eco-costs , costs , value of product.

the evr combines eco-cost , value see whether product successful. product should have low environmental impact in lifecycle (low eco-costs) , attractive value consumers. value here market value (perceived customer value, called fair price). figure 2 depicts 3 dimensions of product: value, costs , eco-costs.

it trend in society heavy pollution of industry not accepted anymore inhabitants of country. results in stricter regulations countries (e.g. tradable emission rights, enforcement of best available technologies, eco-taxes, etc.). eco-costs become part of internal production costs. internalizing of eco-costs might threat company, might opportunity: “when product has less eco-burden of competitor, product can withstand stricter regulations of government. characteristic of low eco-costs of product competitive edge.” analyse short term , long term market prospects of product or product service combination (product service system, pss), each product or pps can positioned in portfolio matrix of figure 3. basic idea of product portfolio matrix notion product, service or pss characterized by:

its short term market potential: high value/costs ratio
its long term market requirement: low eco-costs.


figure 3: product portfolio matrix evr product strategy of companies.

in terms of product strategy, matrix results in 3 strategic directions:

for many green designs , usual problem have low current value/costs ratio. in of cases production costs higher production costs of classic solution, in cases (perceived) quality poor. there 2 ways it:

a. enhance (perceived) quality of product

b. attach product service (create pss) in way value of bundle of product , service more value of components.

for product has present value/costs ratio, high eco-costs, product , production process have redesigned lower eco-costs. road towards sustainability far more promising strategy of enhancing value/costs ratio of green design.

figure 4: design strategies enhance evr of product.

the reason economies of scale production , distribution available , new product marketed existing client base used brand name, quality standards, service system, etc.

note: common fear of business managers new green products end deteriorated value/costs ratio, , hence have cumbersome position in market. stability of governmental policy plays important role here. when governmental regulations level playing field postponed or abandoned, proactive companies sound product strategies harmed. can cause severe damage transition process , may lead reluctance of players move proactively in future.

the successful design options depicted in figure 4. best design strategy is:

to increase value value high
to decrease eco-costs eco-costs high




^ porter, m. e.: competitive advantage, free press, new york 1985
^ vogtländer j.g. www.ecocostsvalue.com website. 2009