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New Energy Economics: Lifecycle Analysis and the Triple Bottom Line

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Cole Gustafson, NDSU Biofuels Economist Cole Gustafson, NDSU Biofuels Economist

By Cole Gustafson, Biofuels Economist

NDSU Extension Service

This week, I am co-authoring my column with Carl Pedersen, North Dakota State University Extension Service energy educator. Last month I wrote a couple of columns on lifecycle analysis. This article extends the discussion as Carl assists me in looking beyond economics.

Most people are familiar with the bottom line when it comes to economics. Simply put, the bottom line in a financial statement shows net income or losses after the costs are deducted from all the revenues received. To maximize income and minimize losses, it helps to look at inefficiencies in the production process and evaluate ways to reduce the waste.

However, lifecycle analysis includes other bottom lines in addition to economics. Additional bottom lines include a product’s impact on people and the environment. Lifecycle analysis looks at all the resources and has the goal of finding ways to make the production process more efficient by concentrating efforts on the biggest areas of waste.

By using lifecycle analysis, we can develop strategies to balance the interconnection among profit, people and the planet, which also is known as the triple bottom line. The idea is to look at production and impacts realized from cradle to grave and evaluate what goes into producing a product and determining the valuable as well as detrimental outputs. This method does not simply evaluate the financial impacts. It also can be used to look at the social, as well as environmental, effects.

The ideal situation is to find a proper balance among economics, society and the environment. Just like a three-legged stool, the triple bottom line identifies the value for all three components.

Not too many cows are milked by hand these days. If we had tried to milk our cows while sitting on a three-legged stool that has one or two of the legs missing, it would be rather difficult. It would take quite the balancing act to stay upright, and we could not do it for the long term.

It is just as important to remember the economic and social, as well as environmental, effects of products we produce and services that are offered if we hope to sustain our operations and communities. We can illustrate this point by looking at the impacts of the surging oil development in western North Dakota.

There are obvious economic impacts from the oil boom. Stories abound about the mineral rights holders that became overnight millionaires after signing lease contracts. Also, business owners are experiencing significant increases in sales, and average worker salaries are high. With the good, there also is potential for adverse economic impacts. The rising cost of housing and the high cost to maintain infrastructure are just a few. Hence, people in the region have to assess if the overall economic bottom line is positive.

However, the economic impacts are only one part of the triple bottom line. We cannot forget about the social and environmental effects. Society certainly has been impacted by increased opportunities for employment, but traffic congestion has increased as well. The environment has been impacted by the clearing of land for drilling rigs and pads and release of long-sequestered gases in the drilling process, plus oil and fracking water spills.

Some are trying to answer the question if agriculture production also may be impacted by potentially reduced yields because of dust from heavy truck traffic on country roads.

Trying to balance each of the three bottom lines is where the difficulties lie.

Future columns will use the triple bottom line approach as a lens to look at other energy issues.


NDSU Agriculture Communication – April 26, 2011

Source:Cole Gustafson, (701) 231-7096, cole.gustafson@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
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