Justifying the feel-good labels

Imagine a future version of Amazon.com where the price for each product is reported in two different ways: as dollars (P1), and also as carbon-adjusted dollars (P2). Now consider a pair of competing products, A and B, under two different scenarios. In one scenario, A's P2 is lower than B's, but A's P1 is higher than B's. Some people will be willing to pay the higher P1 (i.e., more dollars) to reward A's lower P2 (i.e., less environmental impact), but most won't.

In the other scenario, however, A's P2 is still lower than B's, but its P1 is about the same. In other words, there's no penalty to the buyer for rewarding A's lower environmental impact. If the P2 data are available, it's a rational choice. [Full story at InfoWorld.com]

Several readers wrote to dispute the assumption that global warming is a real threat, and that one useful response would be to restructure manufacturing operations and supply chains in ways that reduce the amount of carbon we're pumping into the atmosphere. Fair enough. In fact, I should have broadened the argument because it does not depend on that assumption.

We can all agree, for example, on the need to reduce the economic and geopolitical instabilities resulting from our dependence on oil. From that perspective, the alternative pricing mechanism I'm proposing would be a way to reward suppliers who organize their supply chains in ways that reduce that dependency. Supermarkets, for example, use feel-good labels like "locally-grown," but they don't quantify what that means in terms of transportation miles saved. Reporting that number would help me evaluate the environmental benefit associated with paying more for local strawberries. More subtly, in the case of similarly-priced items -- say, strawberries from California versus Rhode Island -- it would enable me to prefer non-local sources that are relatively closer to home.

But is such measurement even possible? Brian Bartlett writes (email quoted with permission) thinks not:

Yes, we do call pollution, among many other things, externalities, but that does not mean we have enough data to predict the exact amount of an externality in, for instance, a supply chain let alone quantify them by dollar value. I came to this conclusion while examining the EuP regulation proposed for the European Union and what is required is statistically impossible to reliably measure or predict. Simply consider the case where one manufacturer in the supply chain for an item relies on two or more other suppliers. One has to know, at all times, exactly their contributions to the final product including transportation externalities for each to quantify the overall externality cost. I have yet to see industry ever accomplish that reliably. Not even the US military can accomplish it and they have tried. Another externality, transportation of product from warehouse to customer, be it business to business or business to customer, will vary radically by location, time of year, etc. Again, you can at best predict after the fact (hindsight is ever 20/20).

This is the same type of problem in information theory as to why a centralized, command economy will not work. There is always lag in measurements and statistical past does not always reliably predict statistical future, although it may help, somewhat. Models, especially predictive models, are a field I have been working in for over thirty years and both your presentation here, and EuP, are unworkable in the real world.

The European Union's forthcoming EuP (energy-using product) mandate was, by the way, characterized as a "coming regulatory storm" in a recent pair of columns by my colleague Ephraim Schwartz. Read it and weep, says Ephraim. So I did read, and did weep. No, that's not what I have in mind at all. So far as I can see, sticking a flowery eco-label on a product is about like sticking a "locally-grown" label on it. I may feel vaguely virtuous, but I have no additional data to inform my purchasing decision.

Some systems already report this kind of data. You can, for example, easily discover the route traveled by any FedEx package. That was an amazing feat when FedEx first accomplished it, and it's hardly routine even today. But as SOA goes mainstream it's something that gets easier for more companies to do.

The key point here is that nobody requires FedEx to report that data. It does so in order to gain competitive advantage. In a world where people are more conscious of environmental factors, and more likely to include them in purchasing decisions, reporting the numbers behind the feel-good label becomes a competitive strategy.

Former URL: http://weblog.infoworld.com/udell/2006/11/28.html#a1567