The business case for carbon management

Carbon management is a potential source of cost-savings

Where becoming a better corporate citizen was once regarded as attractive, it is now largely viewed as part of a much broader agenda with definable benefits, such as cost-savings, new business opportunities and competitive advantage. A recent study titled Cooling India with less warming says there is a serious business case for reducing your carbon footprint. The report identifies the big contributors to global warming the emissions of carbon dioxide (CO2) and hydrofluorocarbons (HFCs), the manufactured chemicals currently used in large quantities in air conditioners and various other products and suggests some good reasons for phasing down HFCs in room and vehicle air conditioners.

The manufacturing cost of ACs with low global warming potential (GWP) is 15 per cent more than the ones with higher GWP. The current refrigerant (HCFC-22) still used by some manufacturers in India has a high GWP of 1800. Usually, a separate manufacturing line is required to make ACs with low GWP. In April 2012, Godrej & Boyce started a new production line in India of room air conditioners with HC-290, which was selected because it has zero ozone depletion potential and GWP as low as 3. The line has a capacity of approximately 180,000 units per year. And if the company sources are to be believed, consumers are lapping them up the green ACs now contribute 26 per cent of Godrejs domestic AC sales.

Thats the key really: consumers are willing to pay extra for products with low carbon footprint. Little wonder then that most consumer durables companies in India now want to be acknowledged for their eco-friendly practices and for the use of green technology. Companies like Samsung, Panasonic and Godrej have been doing this consistently through their communication.

Now look at whats at stake. The Indian Refrigeration and Air-conditioning Manufacturers Association (RAMA) reports a 20 per cent annual growth rate for the past decade with 30 per cent growth likely for the next five years. Based on RAMA and Lawrence Berkeley National Laboratory (LBNL) forecasts, nearly 200 million air conditioning units will be in service by 2030, an increase of almost 40 times the current number. The power consumed by air conditioning will also increase to 50 TWh/year by 2030, more than 10 times the current number.

Many Indian companies, especially in the automobile industry, are designing products that satisfy the most stringent energy efficiency, safety and environmental standards so they can be freely marketed worldwide. Nearly all automobile air conditioners produced or marketed in India use HFC-134a, which has a GWP of 1430. However, the alternative refrigerant HFO-1234yf with a GWP of 4 is now available. Tata Motors and Maruti Suzuki have designed prototypes using an HFC replacement almost 1,400 times less potent than the current HFC refrigerant. Some stakeholders point out that the current price of HFO-1234yf is about five times more than HFC-134a as a result of the more complex chemistry involved in its production and application patents.

This has simplified manufacturing, requiring fewer parts and fewer types of refrigerant-charging equipment. Inventory costs are reduced since vehicles can be shipped to any market. The service sectors tool and training costs are also minimised once the fleet turns over and requires only one refrigerant. Early transition to next-generation technology also helps in building and maintaining brand loyalty because a car owner is less likely to face shortages of obsolete refrigerant or increasing prices due to shortages. Furthermore, new car buyers in India may favour next-generation technology that is environmentally superior and not dependent on obsolete chemicals.

Bottomline: Since emerging economies are driving consumption globally, the so-called Green Challenge is actually an opportunity for Indian manufacturers to address the problem of global warming proactively and cement its position in a whole range of product businesses across international borders.