Evaluation of Improvement Strategies in Ecodesign with the Use of Cost Benefit Analysis

Evaluation of improvement strategies in ecodesign with the use of Cost Benefit Analysis

IlkeBEREKETLI ZAFEIRAKOPOULOSa, KonstantinosAravossisb

a, Galatasaray University, Industrial Engineering Department, Istanbul, Turkey

b, National Technical University of Athens, School of Mechanical Engineering, Sector of Industrial Management and Operational Research, Athens, Greece

Abstract:

One of the biggest problems of our time is the drastic change in the environment, mostly due to the consequences of mistakes done in production systems. In order to overcome those problems, we need to transform the traditional ways of production into sustainable ones. Ecodesign is an approach aiming to fulfill this task. Engineers, using ecodesign methods and tools, develop several improvement strategies to make a product environmental friendly.However it is a hard task for decision makers to choose the optimum strategy among others.Therefore it is important to use an appropriate integrated technique to assess both the economic and the environmental performance of each improvement strategy.In order to evaluate the economic performance, Cost Benefit Analysiswill be applied in this paper by focusing on its feasibility step. Environmental performance will be evaluatedthrough Life Cycle Assessment. The proposed method will be applied for an Electrical and Electronic Equipment (EEE).At the end of the analysis, the ecodesign improvement strategy to be implemented will be selected.

Keywords:Ecodesign, Cost Benefit Analysis, Life Cycle Assessment, Strategy Alternatives, Decision Making.

1. Introduction

Excessive production and consumerism caused several hardly reversible environmental problems starting at the last century, such as resource depletion, climate change, pollution, etc. To eliminate those problems, changing the consuming habits or providing solutions in waste management are not enough. Sustainable, healthy and environmental production systems should be developed to go down to the core of the problems. Ecodesign is a method developed, aiming to transform classical production systems into sustainable ones and to delete or to reduce environmental problems occurred during the whole life cycle of the products, without compromising the quality, cost, functionality, aesthetics, etc. of the product (Karlsson and Luttropp, 2006; Gurauskiene and Varzinskas, 2006; Pigosso et al., 2010).

Ecodesign is based on the notion of sustainability, and sustainability can only be achieved if the proposed solutions and environmental or social improvements are economically viable.

The main problem that this paper deals with is how to evaluate ecodesign improvement strategies.

There are several potential improvement strategies mentioned in the literature to implement ecodesign (Brezet et al., 1997; Wimmer et al., 2004; Luttropp and Lagerstedt, 2006). However none of them proposes a structured model to show the decision makers which strategy to implement by considering different factors required for a successful product development. They usually tend to neglect the cost for the implementation and the possible effects, which may lower the product quality. Therefore it is crucial to add the economic parameters in the evaluation of the most suitable ecodesign improvement strategies for the studied product. The novelty of this paper stands on this approach.

In previous studies (Bereketli and ErolGenevois, 2013), the ecodesign improvement strategies have been developed through a multi-aspect QFD for Environment (QFDE)technique and their weights have been obtained. To complete these quality based works, it is necessary to add the economic criteria and to decide on which strategy to implement in order to obtain both environmental and economic product. To do that, a proper economic analysis tool is required.

Cost Benefit Analysis (CBA) is a widely used method, in which the investments are mainly assessed through the calculation of their evaluation indicators, namely benefit/cost (B/C) ratios, as well as the quantification of their financial, technical, environmental and social risks (Karmperis et al., 2012b). CBA uses the B/C ratio in order to demonstrate that the project’s benefits are greater than the relative costs.CBA is a suitable tool to deal with the problem taken into consideration in this study and chosen for the economic assessment of the improvement strategies.

To conduct the environmental assessment part of the problem, the Life Cycle Assessment (LCA) approach is chosen. LCA is an objective process to evaluate environmental burdens associated with a product, process, or activity, by identifying and quantifying energy and materials used and waste released to the environment (Fava et al., 1991). LCA provides valuable information for designers to improve environmental performance. Therefore its use is suitable to fulfill the aim of this study.

CBA and LCAare applied for an Electrical and Electronic Equipment (EEE). EEE attracts a significant interest because of its negative impacts on the environment and human health, and it is crucial to manage ecodesign of EEE mainly for two reasons: On one hand they include hazardous substances, which harm the environment, especially when they become waste(Widmer et al., 2005; Aizawa et al., 2008). On the other hand they include valuable metals, which cause resource depletion(Widmer et al., 2005; Chancerel et al., 2009).

1. Literature Review

CBA is regarded originally as the main investment evaluation technique, through the quantitative summation of the investment’s anticipated impacts on consumption benefits and resource costs (Almansa and Martínez-Paz, 2011). In the relevant literature there existCBA applications, as well as several multi-criteria decision making methods (Damart and Roy, 2009; Jung, 2012),for the evaluation of anenvironmentalproject’s alternatives, especially in the field of waste management (Karmperis et al., 2012a;Karmperis 2012b;Karmperis et al., 2013).In general, those projects are examined in a case-by-case basis, as the environmental benefits and costs are correlated with the project scope. There are also some studies, which combined CBA and LCA (Wightman et al., 1999; Weidama, 2006; Georgakellos 2012;Reza et al., 2013; Møller et al., 2014). Mizsey et al., (2009), Buytaert et al. (2011) and Hoogmartens et al. (2014) analysedthe relation between CBA and LCA and compared these two methods.Almost all of those studies use the relevant approaches to evaluate projects rather than products. Among all these efforts, there is a lack in evaluating a product’secodesign improvement strategies through economic and environmental criteria together.

1. Theoretical model
2. Cost Benefit Analysis

The benefit–cost ratio (BCR) are formulated as equation

BCR = B/C(1)

or

BCR = B – C (2)

whereBrepresents the equivalent value of the benefits associated with the project andCrepresents the project's net cost. AB/Cratio greater than or equal to 1.0, or a B-C greater than or equal to 0 indicates that the project evaluated is economically advantageous. Nevertheless, the commonly used method for the investment evaluation is the discounted cash flow analysis (DCFA), where the cash flows arising in different years are adjusted in net present value (NPV) with the use of the discount rate (Karmperis et al., 2012b).In order to obtain a net present value (NPV), discount rate (x) applies to cash flows (CF) across T years as indicated by eq.3:

(3)

The equation indicates how the NPV can be calculated in order to deal with long time horizons. If the NPV is positive, the project achieves the imposed profitability requirements (Hoogmartens et al., 2014).

According to European Commission’s (EC) guide to CBA of investment projects (EC, 2008),Cost Benefit Analysis is structured in six basic steps: 1) context analysis and project objectives, 2) project identification, 3) feasibility and option analysis, 4) financial analysis, 5) economic analysis, 6) risk assessment. The specific guide to CBA (EC, 2008) suggests carrying out a simplified financial and economic analysis for each project’s alternative, in order to compare them and then to select one.

Generally, a project’s alternatives are evaluated in the third step according to economic criteria. Therefore this paper will focus on the third step of the Cost Benefit Analysis, where the feasibility of the ecodesign improvement strategies is evaluated according to economic criteria.

3.2.Life Cycle Assessment

Life cycle assessment is a methodological framework used to quantify a wide range of environmental impacts that occur over the entire life cycle of a product or process (Guinee et al., 2002). It is often referred to as a “cradle to grave” analysis (Rebitzer et al., 2004), and the assessment generally includes a quantification of the resource use and emissions associated with all of the major phases of the production chain, including the extraction and processing of raw materials, manufacturing processes, transportation at all stages, use of the product by the consumer, and recycling or disposal of the product after use (Consoli, 1993).

The purpose of an LCA can be (1) comparison of alternative products, processes or services; (2) comparison of alternative life cycles for a certain product or service; (3) identification of parts of the life cycle where the greatest improvements can be made (Roy et al., 2009).

In this study LCA will be used with the purpose of comparing life cycle performances of the same product’s different ecodesign improvement strategies alternatives.

1. Case study – Hand Blender

For the application of the suggested methodology, a product from EEE family, a hand blender is used.

A hand blender is a kitchen appliance to blend ingredients or puree food in the container in which they are being prepared. The exemplary product is disassembled. All parts are weighted and energy consumption levels are measured. General information about the product is given on Table 1 (Bereketli, 2013).

Table 1 Product and life cycle data for the hand blender

Environmental Parameters – general information
Weight / 0,85 kg (including packaging)
Volume / 354x120x102 mm (=4,33dm³)
Lifetime / 4 years
Functionality / Mixing food to soups
Functional Unit / Blending one liter of soup for 1 min.
Power / 170W (max. 180W)
Environmental Parameters – life cycle information
Materials used / Blender: 190gCopper, 120gPP, 30gPVC, 220gstainlesssteel; 10gprintedcircuitboard (PCB)
Mixing beaker: 70g PS;
Wall mounting: 30gPP, 2gstainlesssteel;
Packaging: 10g LDPE, 170gcardboard
All together: 190gCopper, 222gstainlesssteel,
10gprintedcircuitboard, 150gPP, 30gPVC, 70gPS, 10g LDPE, 170gcardboard
Problematic materials / PVC in cables hanging loop, PCB, PS
Manufacture
Production technology / Injection molding (housing 120gPP, wallmounting 30gPP, mixingbeaker70gPS)
Extrusion (packaging10gLDPE, cable30gPVC)
Stranded Cable (20gCopper)
Coiling Engine (170g Copper)
Cutting (220gsteel)
Cutting and gluing (170gcardboard)
Product use
Energy consumption / Blending vegetables and fruits to make soups or shakes.
400 uses in lifetime (2 uses a week for 1min) equals 1,15kWh
Emissions / None
End of life
Reusability / Reuse of parts is not possible (0%)
Recyclability / The materials are not recycled (0%)
Incineration (toxic waste) / 100% of total weight
Landfill / No landfilling (0%)

Possible ecodesign improvement strategies suggested for the hand blender (Bereketli and ErolGenevois, 2013) are as follows:

• Alternative Scenario 1 - using non-hazardous materials:
• Replacing PCB by 25 g of copper wire.
• Alternative Scenario 2 - optimizing product use:
• Changing the design of the handle to improve the ergonomics (assumes no additional cost).
• Adding pulse mode and different speed levels by replacing the current motor by a more powerful one (250W).
• Alternative Scenario 3 - using recyclable materials:
• Replacing low recyclability level materials PS and PVC by higher recyclability level materials Expanded PS (EPS) and HDPE respectively.
• Alternative Scenario 4 - using reusable parts and materials:
• Reusing the motor of the product.
• Alternative Scenario 5 - reducing energy consumption in use phase:
• Adding speed level button to make it possible to lower the motor speed, no need to change the motor (average use of 150W).

The main assumptions in this study are summarized as follows:

• Expected lifetime of the hand blender is four years.
• The interest for the NPV calculation is set as 8%.
• For the alternative scenario – 3, the motor is reused only once.
• In the original and alternative scenarios 1, 2, and 5, the product wastes are treated through toxic waste incineration, while for scenarios 3 and 4, 50% of the waste is incinerated and 50% is disassembled for further treatment.
• For the economic assessment, the labor cost is assumed the same for each alternative scenario. Therefore it is not added to the comparative evaluation calculation.
• The capital is the same for each alternative scenario and it is assumed there is no additional investment cost.
• For the alternative scenarios 3 and 4, it is assumed that the product is returned to the factory by the municipality collectors or by the customers themselves. Therefore no take-back system cost is included.

The changes in materials’ amount and processes, and in cost can be seen on Table 2 and 3 respectively.

Table 2 Changes in materials and processes for each alternative scenario

Copper
(g) / PS
(g) / EPS
(g) / PVC
(g) / HDPE
(g) / PCB
(g) / Motor - Electricity
(kWh)
Original / 190 / 70 / - / 30 / - / 10 / 1,15
Scenario 1 / 215 / 70 / - / 30 / - / 0 / 1,15
Scenario2 / 190 / 70 / - / 30 / - / 10 / 1,65
Scenario3 / 190 / 0 / 70 / 0 / 30 / 10 / 1,15
Scenario4 / 190 / 70 / - / 30 / - / 10 / Reused
Scenario5 / 190 / 70 / - / 30 / - / 10 / 1,02

Table 3 Changes in costfor each alternative scenariocomparison to original product

Material input& Energy
Original / 8 $/unit
Scenario1 / -2,83 $/unit
Scenario2 / +1 $/unit
Scenario3 / +0,81 cents/unit
Scenario4 / -3 $/unit
Scenario5 / + 20 cents/unit

Given all the data and the assumptions made, the economic and environmental assessments of the hand blender are made through CBA and LCA approaches.

4.1.Economic Assessment– CBA

In this part of the study, the material input and energy cost of different alternatives are compared in NPV. For the four years of lifetime of the hand blender, the cash flow and NPVsassociated with each alternative scenario, with an interest rate of 8%are presented in Table 4.

Table 4Cash flows of original and alternative scenarios in four years and theirNPVs ($)

Years / Original Scenario / Scenario1 / Scenario2 / Scenario3 / Scenario4 / Scenario5
1 / 8 / 5,17 / 9 / 8,01 / 5 / 8,2
2 / 8 / 5,17 / 9 / 8,01 / 5 / 8,2
3 / 8 / 5,17 / 9 / 8,01 / 5 / 8,2
4 / 8 / 5,17 / 9 / 8,01 / 5 / 8,2
NPV 1 (ir=8%) / 26,50 / 17,12 / 29,81 / 26,52 / 16,56 / 27,16
NPV 2 (ir=6%) / 27,72 / 17,91 / 31,19 / 27,75 / 17,33 / 28,41

As it is observed on Table 4, all NPVs have positive values. Therefore all scenarios are considered as feasible. Nevertheless, considering the changes in comparison to the original scenario, only alternative scenarios 1 and 4 have lowerNPV cost values than the original one. Even with an interest rate of 6%, the findings remain the same.Hence it is concluded that only alternative scenarios 1 and 4 are eligible for implementation in ecodesign of the product since they are the only ones, which are more profitable than the original scenario.

4.2.Environmental Assessment– LCA

The data collected for the product hand blender, including the original disposal scenario, are set in LCA software SimaPro. The network created by SimaPro and the contribution (%) of each material input and process to the environmental performance is seen on Figure 1.

Figure 1 Network scheme of original life cycle scenario (0-cut).

After setting the original product model, the parameters related to each alternative scenario are defined in the software. Through calculation setup module, choosing the Eco-Indicator99 methodology, the comparison results of the alternatives are obtained in a single environmental index (Pt). The single environmental index with the unit of measure expressed in Pt is calculated by weighting the different environmental effects and by totaling them. The essential feature of the impact analysis is to compare the effects with reference values (Ning et al., 2013).

The comparison chart is seen on Figure 2.

Figure 2 Comparison of original and five alternative scenarios impact assessment single score results

As the Figure 2 shows thatonly alternative 4 and 5 have lower environmental impact than the original product scenario. Moreover, the most defining impact category for each scenario is observed as Eco-toxicity. On the other hand, the alternatives scenarios have no significant effect on impact categories Respiratory Organics, Radiation and Ozone Layer.

4.3.Results/Discussion

First, the economic assessment made in Section 4.1 had shown that alternative scenarios 1 and 4 are the only candidates to be implemented among the other ecodesign improvement strategies. Secondly, observing the Figure 2, it is seen that alternative scenario 1 has a higher environmental impact than the original scenario, while the alternative scenario 4 has a lower one.

The conventional B/C ratio tells how feasible is the evaluated project. Higher the benefit, lower the cost, more advantageous is the project. In this study the benefit analysis is done through the environmental assessment, where lower impact values mean higher environmental benefit. Therefore to calculate the final BCR of each alternative, the formula in eq.1 is converted to the following one:

I x C = Impact x Cost(4)

In this case, lower the impact and the cost values, higher the feasibility of the project.

Table 5 I x C values of the evaluated alternative scenarios

Original / Scenario 1 / Scenario 2 / Scenario 3 / Scenario 4 / Scenario 5
Total Impact (Pt) / 3,176 / 3,329 / 3,187 / 3,179 / 2,657 / 3,173
Total Cost ($) / 8 / 5,17 / 9 / 8,01 / 5 / 8,2
I x C / 25,410 / 17,211 / 28,687 / 25,454 / 13,283 / 26,022

The results seen in Table 5 show that alternative scenarios 1 and 4 are the only scenariosviable to implement both in economical and environmental terms, by having smaller I x C values than the original scenario.It is concluded that replacing PCB by copper and reusing the motor have significant positive effect on the economic and environmental performance of the hand blender.Nevertheless alternative scenario 4 is more advantageous than scenario 1 by having the smallest I x C value, i.e. it has thelowest cost and causesthe least damages to the environment.

The limitation of this study is the lack of exact data for some cost parameters. A more detailed analysis can be done to compare the outcomes, when the data is available. The current calculations consider the major costs (mostly material and energy input) which can affect the feasibility of the improvement strategies. In addition, the costs are calculated based on current prices (July 2014), which can increase or decrease in the future, and this may also influence the results of the evaluation study.

1. Conclusion

Although several sustainability methods and tools are presentedin the literature, it seems there is a gap in the field of evaluating ecodesign improvement strategies. This paper aims to fulfill this gap by adapting widely accepted approachesinto the topic, and the originality of this study stands on this aim. In the current literature, there exist studies, which work on combining CBA and LCA, however none of them is focusing on the ecodesign improvement strategies of the same product. Moreover, the studies that work on the selection of the optimal ecodesign improvement strategies are rare and they mostly use only the environmental parameters for the selection.

In this study the combined evaluation methodology with the use of CBA and LCA is proposed and applied to an EEE product, a hand blender. The NPV and impact assessment calculations are made as the economic and environmental assessment respectively, for every alternative scenario of improvement strategies. According to the results, the most economically and environmentally viable alternative is found to be reusing the motor of the hand blender and chosen to be implemented by the producers.