Building a greener America
Maria Vargas, Senior Program Advisor for the US Department of Energy has spent 32 years working on the preservation of the world’s environment. She began at the Environmental Protection Agency in 1985, battling global warming and the depletion of the ozone layer, before becoming a Brand Manager for ENERGY STAR, the government-backed symbol identifying the most energy-efficient products and companies. In 2011, Vargas moved on to the US Department of Energy, and now runs the remarkable Better Buildings Initiative.
In the US, about $200 billion a year is spent on running commercial buildings, with another $200 billion on manufacturing facilities, and on average, between 20 and 30 percent of the energy used in those buildings can be saved cost-effectively. The Better Buildings Challenge has been issued to spur businesses into saving that energy, and so the role of Vargas and her team is to inspire and enable them to join in.
“Energy efficiency is a huge opportunity for us, and I think while we’ve made progress, there are a series of persistent and pernicious barriers,” Vargas explains. “Those are far-ranging, and are why we set up the Better Buildings Initiative. It might be a lack of senior management buy-in or incentives, not knowing how to finance change, or not knowing what technologies should be used. Sometimes when an organization does one thing, such as installing energy-efficient lighting, they think their job is done.
“The Better Buildings Initiative was borne out of recognition of those barriers, and what it would take to really accelerate the pace of energy efficiency and adoption. It’s built on the leadership theory of change: who in the market is leading the way to understand – or is willing to step up to the challenge of greater energy efficiency – and do so in a meaningful way? Who can manage a 20 percent energy use reduction across their portfolio in 10 years, and is also willing to publically share what they’re doing with others?”
Vargas states that while organizations are happy to learn from their government in many ways, they look to their peers when building a strong business case. Organizational sea change is one of the toughest barriers to break through; changing the way a company views and values the investment of efficiency is too often seen as an extra overhead cost, when in reality, energy efficiency benefits everybody.
“People ask why partners join the Better Buildings Challenge and what the benefit is,” Vargas says, “and the most obvious one is the monetary saving. On top of that, these companies are trying to attract the best talent, and the best talent wants to work for organizations that truly care. There are no downsides – nobody is going to complain if you use less energy. A kilowatt does not have a union.
“It’s fascinating, seeing what it takes to get an organization to move from being set in its ways to doing something different, and how to make that happen. Some brands are more flexible and adaptable than others, but the potential challenges force you to think differently. Those who think differently are the ones who empower their employees.”
The Department of Energy offers a great deal of support to those companies willing to join in with the Better Buildings Challenge. There is a technical hub available to aid those unsure of which technologies they should invest in, financial advice for those who may be seeking to enable their CFO to think differently, and a service to help track energy usage in order to manage it effectively. The other element to this support is connecting partners with one another, removing the element of competition by opening avenues for them to help each other. To illustrate the effectiveness of this, Vargas and her team started the Better Buildings SWAP, which sees two organizations swapping places, learning, and collaborating on ideas.
“While we established the importance of sharing information, we were trying to think about how we could prove it in a way that was fun and engaging,” explains Vargas. “Energy efficiency by itself is typically not the most exciting of topics, and yet the reality is there’s a lot of really cool stuff going on. We realized that even if companies were willing to share information, they probably thought they could only share within their own sector. A hospital can only learn from other hospitals, a grocery store can only learn from another grocery store – that’s not true.
“We wanted a way to demonstrate in a fun, interactive way that learning can happen across the market, and eventually we came up with this notion of a swap.”
The first series of the Better Buildings SWAP features Hilton and Whole Foods – both giants in their field, one very corporate and one very proud of being the opposite of corporate – swapping places and sharing the details of their organizations in the most open way possible.
“One of the Whole Foods team said ‘there’s never been suits in the kitchen before’. Despite the cultural differences, the lessons each organization took away from the experience were quite profound. That’s why we decided to make more episodes of SWAP, because it illustrates the ‘a-ha!’ moment we want people to have when they think about energy efficiency. We want to show that other people have the same issues as you, and that you’re well-served to figure out how they overcame those issues. While it’s a serious issue and very much in the national interest, we’ve proved that it can still be enjoyable and engaging.”
Vargas and her team have reaped the rewards of the SWAP in the form of positive feedback and increased awareness of what she and her team are doing. Thanks to an unforeseen degree of recognition – after all, a televised business swap is a highly unusual project for a governmental department to undertake – the first season achieved over 50 million media impressions and 300,000 YouTube views. Season two – a swap between the US Airforce Academy and the US Naval Academy – has over 1.5 million views.
The team has already wrapped on a third season – a city swap between Boston and Atlanta – which delves into a whole new set of trials. The diverse spectrum of sectors that the show has already put through the same challenge is what makes it so appealing for its audience, and it has enjoyed enough enthusiastic feedback to warrant at least two more series.
“Lots of people have been covering it, which is a microcosm of what my challenge is for energy efficiency,” says Vargas. “All these partners are doing great things but if nobody knows about it, we’re not changing anything. Part of the SWAP is about educating and engaging. The smartest people you’ll ever work with are the ones who admit they don’t know everything, the ones who will openly state that they want to learn and be better. The Better Building Initiative as a whole encourages that.”
The group of over 300 companies already taking part in the Better Buildings Challenge have saved billions of dollars between them, but in Vargas’s words, “the biggest savings come from this leadership group’s ability to motivate and accelerate change”. On the commercial buildings side alone, this project could save £80 billion every year. The businesses involved view energy efficiency as not only something they should be doing because their competitors are, but as something they should do and can do easily. The main goal of the initiative is to transform the US market and the way energy is thought about country-wide.
“That’s our hope and our belief, that people will see the savings and the impact these organizations are making, and be inspired by it. This is something that will snowball from here, and from one company to another too. It’s fascinating to watch this internally, seeing some companies make their first forays into energy efficiency, and others being inspired by their peers to expand their efforts.”
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What’s Causing the Global Supply Crunch?
As the global economy gradually recovers from the impact of COVID-19 pandemic, worldwide supply crunch is intensifying, spreading not only from one country to another, but also from one industry to another.
A year ago, when the pandemic continued to spread, economies around the world were severely hit and there was panic buying among consumers. Today, it is companies that are trying to go on a stockpiling, buying more raw materials than they need to keep up with rapidly recovering demand. The panic buying is fuelling more shortages of raw materials, including copper, iron ore, steel, corn, coffee, wheat, soybeans, wood, semiconductors, plastics, cardboard, etc. As a result, inventories of seemingly every raw material around the world are running low. “You name it, and we have a shortage on it,” Tom Linebarger, chairman and chief executive of engine and generator manufacturer Cummins Inc., said earlier, and he noted that his clients are “trying to get everything they can because they see high demand”.
Supply shortages have driven prices up significantly, with the impact of rising prices for some key raw materials being significant. The prices of various industrial raw materials such as crude oil, plastics, and chemicals are rising. Some of the impacts of higher raw material prices have already begun to be reflected in consumer goods. Reynolds Consumer Products Inc., the maker of the namesake aluminium foil and Hefty trash bags, is planning another round of price hike, and this will be the third for the increase this year alone. Food prices are also climbing. The price of palm oil, the world's most consumed edible oil, has risen more than 135% over the past year to record levels; soybeans have topped USD 16 a bushel for the first time since 2012; corn futures prices have touched an eight-year high, and wheat futures prices have risen to the highest level since 2013.
Changes in factory orders due to the impact of the pandemic have also tightened supply in some markets and pushed up prices for raw materials. Some knitting enterprises in Dongguan, Guangdong, said that affected by the pandemic, about 40% of the orders have come back to China from countries such as India and Southeast Asian countries, while the factory utilisation rate has increased by about 30% to 40%, and now it has reached 100%. In Jiangyin, Jiangsu, a bedsheet enterprise adjusted its production capacity to accommodate a USD 20 million order from Southeast Asia. Increased demand from the textile industry has led to tight supplies of raw materials. In Wujiang, Jiangsu, where polyester filament yarn is the most in demand, the shortage of raw materials this year has been unexpected, especially in the current off-season, when there is not much stock. In Suzhou, also in Jiangsu, the export of polyester filament yarn increased by nearly 60% from January to April, while the price increased by 40% to 60%. Compared with the same period last year, the price of filament yarn increased by RMB 2000-3000/ton.
Remarkably, this hoarding frenzy is pushing global supply chains to the brink of collapse. Inventory shortages, transportation bottlenecks, and price increases are nearing critical levels, raising concerns that strong global growth could fuel inflation. The supply disruptions in the past are simply incomparable compared to the severe inventory crunch of 2021. Industry insiders predict that both large and small enterprises will be affected by this supply shortage.
Why are current supply shortages so acute?
Researchers at ANBOUND believe that instead of having one single factor, there are multiple reasons for the emergence of complex systemic problems.
First of all, there is the recovery in demand as the pandemic is brought under control. This year, as vaccination rollout efforts have brought the pandemic significantly under control in the United States and some European countries, the economy has begun to show significant momentum for recovery. This trend prompted a near-simultaneous recovery in most markets around the world. The collective recovery of global markets has led to a near-simultaneous increase in demand, exacerbating the mismatch between supply and demand. In the case of commodity futures, the capital was collectively bullish on commodities under such expectations, significantly driving up the prices of commodities (mostly upstream commodities) and spreading to midstream and downstream commodities. It should be noted in particular that the surge in demand for certain specific commodities under the pandemic has also exacerbated the supply-demand mismatch in some industrial chains. For example, the increase in the need of remote, online working and studying has increased the demand for all kinds of electronic products, leading to a surge in global demand for semiconductor chips, which affects several chip-requiring industries.
Another reason is that the pandemic has disrupted the global supply chain system, causing distortions in supply and demand in certain industries, which are transmitted along the supply chain, causing a wider supply crunch. As ANBOUND previously pointed out, the spread of the pandemic has dealt multiple blows to global supply chains. During the pandemic, China, as the "world's factory", was affected by the pandemic and its production side was disrupted. Then, the demand side of developed countries was suppressed by the impact of the pandemic. This is followed by the fact that the malfunctioning of the global supply chain system has exacerbated global supply distortions. To cite an example, the severe shortage of containers due to disruption of the supply chain has exacerbated the global supply distortions.
In addition, enterprises began to collectively increase their inventories, leading to the increase of inventories in the industrial chain and supply chain, amplifying the demand for all kinds of raw materials, intermediate products, and supporting products. In the past, in order to save costs and improve efficiency, many enterprises advocated zero-inventory production and tried to reduce the inventory in the production link, thereby reducing the capital occupation. However, the smooth operation of zero inventory production depends on the efficient global supply chain system. Once a problem occurs in the global supply chain system, it can lead to chaos in the whole supply chain system. The 2011 earthquake in Tōhoku, Japan has caused the shutdown of some key auto parts plants, which once led to the global auto supply chain being affected. Likewise, the global spread of the COVID-19 pandemic since last year has damaged, distorted, and even disrupted global supply chains.
Finally, geopolitical factors have also contributed to the tight supply of global commodities, resulting in the artificial disruption of part of the industrial chain and supply chain. For example, the U.S.-driven crackdown on chip supply to Chinese enterprises and related sanctions have seriously disrupted the global semiconductor industry chain.
How long will the supply crunch last?
Overall, the global supply crunch is due to a variety of reasons, including increased demand from the post-pandemic economic recovery, distortions in global supply chains caused by the pandemic, collective stockpiling by enterprises around the world, and geopolitical disruptions. However, this does not represent a significant expansion of aggregate global demand, but rather a distortion of the existing system as it is disrupted and broken. Judging from the current situation, this tight supply situation will last for a long time, leading to the price rise of raw materials and components. Therefore, both enterprises and governments need to be prepared for this scenario in the medium- and long-term.
Mr. He Jun is Partner, Director of China Macro-Economic Research Team and Senior Researcher. His research field covers China’s macro-economy, energy industry and public policy.