Monday, May 16, 2011

The efficiency triangle



Moth's Efficiency is Truly Virtuous: Planning Prosperity blog post made me think about efficiencies. While some of that thinking got to a comment on his post, there was more to it.

If we draw "monetary efficiency" and "resource efficiency" on the same picture, we get the above quad-field figure. Now, it seems this visualization will help understand efficiencies in general and maybe cast them into "good" and "bad" baskets.

The problem is - and this is usually presented by the Degrowth movement - that making something efficient tends to also raise the consumption of the now more efficient (= more cheap) product, thus maybe making the end result worse than the beginning.

But something in me has objected that thinking. And the above figure lets us study the different cases of efficiency change.

The axes

On the horizontal axis we have monetary efficiency. Whatever your starting product or average of technology price point is, defines the "You're here" center (1.0 on the scale). Making things cheaper takes you left; making them more expensive takes you right.

The vertical axis works the same, but in relation to some resource. This can be emissions, energy usage, water usage, practically whatever. The thing is that it is independent from the monetary value of things.


Upper left quadrant


In the upper left quadrant are products (or changes to your existing product) that lead to cheaper costs (left) and less resource usage (up). But it matters which one of these dominates.

If your product is made cheaper more than it's made resource efficient, the likely rise in sales will more than eat up the resource efficiency. The white area of the upper left quadrant is what the degrowth people are worried about. Rise is unit-wise resource efficiency but fall in total.

Note that in real life the price elasticity of products (how much more will be consumed for a drop in unit price) is not linear 1:1 as we expect here. That simply means the white and green areas are not clean triangles. To keep things simple and to propose the overall idea of the figure, we're doing it like this.

The green triangle of the upper left quadrant tilts things from bad (increased total resource usage) to good (decreased total resource usage). This is because here the increase in resource efficiency is greater than the added consumption due to price lowering. Simple.

Products that would be placed in the upper left quadrant are such where prices tend to fall. Computers, monitors and (at least it used to be) mobile phones. The latest low price on PC's is $25 (but that product is extremely resource efficient as well).

Upper right quadrant

This is where prices go up but resource efficiency is made better. LED bulbs. Wind and solar power generation. Electrical or hybrid cars.

I've drawn a yellow triangle here but it works a bit different from the earlier quadrant. Here, the question is more on what the ratio of raised price to better resource utilization is. In other words, is the added price actually getting us anything.

If you're within the yellow triangle, increase in resource efficiency is higher than the increase in price. Seems like a good deal. However, if you're within the white area, you might question if you're making the right thing. I.e. you would be making something twice as expensive as the current status quo technology, but only 1.3 times more resource efficient. It might - or might not - be worth doing.

Naturally, the position within the quadrants changes over time as technologies mature. Hydrogen fuel cell cars have been within the upper right white area for decades. If you know a product or technology will be able to "break loose" from the white, it might be worth developing it within there. Price only matters when the product is out on the market. But consider being on the white at least a warning sign (and study which alternatives there are that would be within the green / yellow triangles).

So where to aim?

One revelation (at least to me) from this quad-field figure is that one should aim at the vertical axis. Trying to keep the product pretty much within the current price range (of existing alternatives) while heavily making it more resource efficient seems like the best approach (from the total resource utilization point of view).

Of course, market conditions may state that you should go for lower price (if you can) to grab market space from existing, not so resource efficient solutions. But beware of going too focused on the price alone. Hopefully, the triangle will give you a compass bearing to keep things in perspective.

That's it!

I'm more than happy to hear how you see this figure and/or start using it. Enhancements are naturally welcome. If you reference it somewhere please credit me (Asko Kauppi) unless I've unknowingly stumbled onto something already out there. Things do get invented multiple times, you know.

And if you're in the resource efficiency business, one way or the other, please drop by at LinkedIn De-Growth Companies forum that I founded some time ago.

3 comments:

Moth Incarnate said...

A while ago, I had a small role in eco-mapping (ie. industry efficiency mapping),in which such a model would be a useful tool - not only for improving practices but for proactively designing consumable range.

The most important factor, however, (and the main driver behind the series I've put forward to The Sustainable Cities Collective) is a fundamental question; "Why?"

Arguably the most short-sighted human activities are the result of this. We have a strong ideologically based presumption that resources are there to be exploited. As our technology improves, we get better at obtaining them, driving down costs. It's inaccurate that it has been largely for the improvement of societies, but that's another problem on it own.

The problem starts with shifting our views of resources - ie. answering the "why?"

Resources are the true wealth. They need to be managed and maintained and hopefully invested in to accrue interest. Resources are not from nature with the only cost association in extraction. An initial value needs to be addressed (much like is happening in recent years with placing a price on carbon).

In that way, it becomes cheaper to reuse and recycle than to extract. It becomes more sensible to shift behaviours that favour energy transfer in cycling resource processing rather than linear waste conversion. By assigning wealth to resources, we include the missing link in the sustainable processes desperately required in human activity.

At that point, models, such as yours here and "eco-mapping" and renewable resource innovation become what they should be; the fundamentals.

It is a wealthy, liberated society that would be created, but it would look little like todays.

I'm not currently involved with industry in this way, but I am linkable on LinkIn at http://au.linkedin.com/in/mothlubcke

akauppi said...

Thanks, Moth, for the comment.

You are absolutely right about the "why" and about the need of putting a price on the "externalities".

The first time I remember asking "why" (with regard to such issues) was during Christmas present sharing. Must have been 8 or 9. You know, we get *lots* of presents in Finland (as I think you do, as well). Anyways, the Santa lives here so maybe we get even more. *<:)

But for the young boy, it was more than enough. Why so many presents? I realized only some of them would become really precious. The rest.. would soon be junk and thrown away. It said "Made in Hong Kong" at the bottom.

So - why?

For my parents and grandparents, who obviously were mostly to be "blamed" for this mountain of gifts, it must have been to show that we can. To show love. To show caring and nurture. That's all fine - only less of presents would actually have done the same thing.

But was I going to open my mouth? No. I did realize that might not be the right approach (though it would have been brave). Saying: "dammit. Don't you realize I get the loving with a few less presents". I guess I sometimes did something akin to that, eventually.

Then there's the other axis - friends. My friends got about as much presents, and of course after Christmas when we were out we'd compare what everyone's gotten. It's the relative amount of stuff you get. You don't want to be the one with 3 presents, if others got 30. You want to be at least around 25. And with the hip presents.

Isn't it exactly so with the world?

Some of us have woken from this era of consumption to the next era - maybe of collaboration and sharing. Some are still in the consumption era. And some (countries) haven't even made it there, yet.

Moth Incarnate said...

That is the trap and I've always found the following picture the saddest example of that problem;
http://failblog.org/2009/10/10/limo-fail/

Indeed a number of people are awake to the reality of consumerism; some have always questioned as appears in some of the literature. We're all, unfortunately stuck with it at the moment.

A mate sent me this excellent short presentation;
http://www.ted.com/talks/marcin_jakubowski.html

That is along the lines of genuine prosperity as I know and understand it. Open source information sharing is akin to the freely available resources I've been discussing of late. It's principles that don't suit any social paradigm so far explored.