Transformational change is happening to the manufacturing sector with this month’s news that BP, Philip Morris, Boeing, Toyota, Ford and Holden closing factories and slashing jobs. While the publicised approach has been to remain competitive through staff cost reductions, what if the approach was cost reduction and productivity improvements through energy efficiency?
“The decline in manufacturing has been going on for a long time. It’s not something that has just happened in this downturn, during this period of a high exchange rate. It has been declining since the early 1970s,”
“Manufacturing in the 20th century has been about large-scale production to gain economies of scale. With our small population and distance from the richer world markets we have never had access to the size of market that is needed to underpin large-scale production.”
Despite this long-term trend, Australia’s fall off the competitive landscape was slowed by its access to cheap energy. Gifted by our land’s abundant natural fossil fuel resources and traditionally high mining output, upstream manufacturing was the country’s source of manufacturing competitiveness. But this benefit is increasingly being extended to other countries: the United States are expected to become the number one oil producing country off the back of fracking/shale, and our mining expansions are to satisfy China’s booming manufacturing industry. Now, as discussed at the Australian Alliance to Save Energy’s 2XEP: Forum on Doubling Energy Productivity, the sector has two options: restructure (i.e. job cuts, e.g. BP, etc.) or transformational organisational change.
The conference focused on energy efficiency as an important transformational change opportunity. The likes of Simplot, Sydney Water and DEXUS Property presented excellent case studies of projects that saved them serious dollars. Ingenero presented the low levelised cost of energy – and therefore irresistible business case – of solar PV installations. Sustainability Victoria shared their work with SMEs in improving productivity through energy efficiency. The Clean Energy Finance Corporation described the many projects it finances that are focused on increasing production and output as they are on reducing energy costs. Former Australian Defence Minister Robert Hill summarised research and/or anecdotes saying schools and hospitals that were built in a resource efficient way were more likely to make the entire business more efficient and productive.
In my research thesis on energy efficiency measures in Australia, one of the interesting areas for further exploration was that smaller manufacturing industries undertook energy efficiency projects with greater savings than mid-sized ones. My intuition wonders if this is prompted by the desire to remain competitive.
Given the volume of case studies, opportunities and insights flying around throughout the two days of the 2XEP Forum, the value and potential of energy efficiency as opposed to job cutting is convincing. I assume that like wages, energy costs take up a large chunk of manufacturer budgets. Further, a Festival of Dangerous Ideas talk last year described a study of businesses in Norway found that those which did not react to an economic downturn with job cuts were more successful and productive long-term (sorry, I do not know the reference). These points further strengthen the business case.
Of course, energy efficiency has its own barriers to implementation. The conference discussed these at length, with every session covering its own opinions and conclusions of what the main obstacles are (and as an aside, this further reinforced my opinion from my laundry list of barriers blog post last year that “despite the volume of works… the literature suffers disorganisation and a lack of consensus”). As complex as energy efficiency challenges are, there are also complex legal, industrial relations, public relations and operational barriers in slashing jobs . While one could argue that businesses are more experienced at a job cutting type of complexity than an energy efficiency one, is that justification good enough?
There is clearly merit in focusing more on energy efficiencies as a tactic to improve the competitiveness of manufacturing businesses, as the sector has only just started grasping the low-hanging fruit. What a fantastic story it would be to save hundreds of jobs by undertaking energy efficiency projects. It would be interesting to learn to what extent BP, Philip Morris, Boeing, Toyota, Ford and Holden explored energy efficiencies in the lead-up to its mass redundancies.